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Meta earnings updates: Stock drops 6% as capex spending is expected to balloon to new heights [Business Insider]

Meta Platforms Inc. delivered its latest quarterly earnings report after the closing bell yesterday, and while the headline numbers showed a company still printing money from its core advertising business, Wall Street focused on a different story: the company's plan to spend an astronomical amount of money on capital expenditures, or capex, in the coming year. The result was an immediate 6% drop in after-hours trading, a move that speaks to the growing tension between Meta's ambitious AI infrastructure buildout and investor patience.

A Beat on Revenue, But the Devil Is in the Forward Guidance

Let's start with the numbers that looked good. Meta reported fourth-quarter revenue of $46.4 billion, beating analyst expectations of roughly $45.3 billion. Earnings per share came in at $8.02, also above the $6.76 consensus estimate. The company's ad business remains its undisputed engine, with daily active users across its family of apps—Facebook, Instagram, WhatsApp, and Messenger—hitting 3.35 billion. That's a lot of eyeballs, and advertisers continue to pay premium rates to reach them, especially with Meta's AI-powered recommendation systems keeping users scrolling longer.

But here's where the story shifts. Meta's management, led by CEO Mark Zuckerberg, used the earnings call to lay out a vision for the next 12 to 18 months that involves spending money at a rate that even some long-term bulls found jarring. The company now expects 2024 capital expenditures to land in the range of $30 billion to $37 billion, up significantly from prior estimates. And when pressed by analysts about 2025, the guidance got even fuzzier—and more expensive. The company signaled that capex in 2025 could balloon to as high as $50 billion, driven almost entirely by investments in AI infrastructure, including data centers, custom chips, and server farms.

Why Is Meta Spending So Much on AI?

Zuckerberg has been clear for over a year that Meta is "all in" on artificial intelligence. He sees it as the defining technology of the decade, and he's betting that the company's future—including its ability to keep growing advertising revenue, its metaverse ambitions, and its evolving consumer products—depends on owning the AI stack from the ground up. That means building massive clusters of Nvidia H100 GPUs, developing its own custom AI chips through the Meta Training and Inference Accelerator program, and building new data centers that can handle the immense power and cooling requirements of next-generation AI models.

On the call, executives argued that these investments are not optional. They claim that the cost of not building out AI capacity now would be far greater than the risk of overspending. "We're seeing strong momentum in our AI-driven content recommendations, and our AI-powered advertising tools are delivering better results for businesses," said CFO Susan Li. "We believe these investments will position us to serve users and advertisers more effectively for years to come."

The market, however, is not entirely convinced. The 6% stock drop suggests that investors are worried about a repeat of the "metaverse hangover" that punished Meta shares in 2022, when the company spent billions on Reality Labs—its virtual and augmented reality division—with little short-term return. While AI is arguably a more tangible and proven technology than the metaverse (at least in terms of current revenue generation), the scale of the capex ramp is unprecedented for a company of Meta's size.

The Balancing Act: Growth vs. Efficiency

To be fair, Meta is in a far healthier financial position than it was two years ago. The company has aggressively cut costs, including multiple rounds of layoffs that reduced its workforce by over 20,000 employees. Operating margins have improved, and free cash flow remains robust. The company also announced a new $50 billion share buyback program, signaling that management still believes the stock is undervalued. But even with those cushions, the capex trajectory is raising eyebrows.

Analysts on the call pressed management on whether the AI spending could be dialed back if the return on investment doesn't materialize quickly. The answer was essentially no. Zuckerberg and Li both emphasized that the infrastructure spending is a multi-year commitment, and that the company is building for the long term. That kind of language typically makes Wall Street nervous, especially in a high-interest-rate environment where future cash flows are discounted more heavily.

It also doesn't help that Meta is still burning cash on Reality Labs, which lost $16 billion in 2023. While that division is a smaller part of the overall story now, it remains a reminder that Zuckerberg is willing to make big, expensive bets even when the market is skeptical.

What This Means for Investors

For current shareholders, the message is clear: you're going to be along for a volatile ride. The stock could remain under pressure in the near term as investors digest the capex numbers and wait for evidence that the AI investments are paying off in the form of higher advertising revenue or new product launches. On the flip side, Meta is one of the few companies with the scale, engineering talent, and cash flow to actually compete in the AI arms race. If Zuckerberg's bet pays off, the stock could have significant upside over the next three to five years.

The key metrics to watch in the coming quarters will be: 1) advertising revenue growth, especially from AI-powered tools like Advantage+; 2) user engagement trends, particularly on Reels and other AI-recommended content; and 3) any signs that the capex cycle is peaking. For now, investors are hitting the sell button, but the long-term thesis remains intact—provided you have the stomach for the spending.

Ahmed Abed – News journalist

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