Meta shares slide after company projects higher expenses for 2026

Meta Platforms Inc. shares declined 7.7% in after-hours trading despite exceeding Q3 revenue and EPS estimates, reporting $51.42 billion in revenue (up 26%) and $7.25 EPS (ex-items). The sell-off was driven by the company's forecast of significantly higher expenses in 2026, primarily due to substantial investments in AI infrastructure and talent, with analysts projecting $97 billion in expenses for that year. While analysts largely support the AI spending as a growth engine for Meta's core advertising business, the increased cost outlook, coupled with ongoing legal and regulatory challenges that could impact key assets like WhatsApp and Instagram, fueled investor apprehension.

Analysis

Meta Platforms reported robust Q3 results, with revenue rising 26% to $51.42 billion, surpassing analyst expectations of $49.51 billion, and adjusted EPS of $7.25 significantly beating the $6.72 estimate. Daily active users also grew 8% year-over-year to 3.54 billion, demonstrating strong platform engagement. Despite these strong operational metrics, the stock experienced a 7.7% decline in after-hours trading, closing at $694, primarily driven by concerns over future expenses.

The primary catalyst for the stock's decline was Meta's warning of significantly higher expenses in 2026, with analysts projecting $97 billion, alongside an upward revision of 2025 capital expenditures to $70-$72 billion. This increased spending is largely attributed to substantial investments in AI infrastructure and talent acquisition, including "eye-popping compensation" for AI experts. Analysts, however, largely view this AI spending as a necessary "growth engine" for Meta's core advertising business, noting that the Q3 revenue growth indicates successful AI integration into ad products.

Adding to the long-term uncertainty, Meta faces significant legal and regulatory challenges, including youth-related trials in 2026 that could result in a "material loss," and an ongoing antitrust case that could force the divestiture of key assets like WhatsApp and Instagram. These potential legal outcomes introduce substantial risk to Meta's future operational structure and profitability, despite the current positive ad revenue outlook.

Key Decisions for Investors

• Investors should carefully weigh Meta's strong Q3 performance and positive ad revenue outlook against the significant long-term expense growth and escalating regulatory risks
• Monitor the company's capital expenditure trajectory and the tangible returns on its substantial AI investments, particularly how these translate into sustained revenue growth and margin expansion
• Closely track developments in the ongoing antitrust case and youth-related trials, as potential adverse rulings could materially impact Meta's asset base and financial liabilities