The Meta Platforms Inc (NASDAQ:META) share price dropped 14% after investors balked at the company’s soaring costs and cautious guidance.
Should investors consider buying the dip or wait for calmer conditions before entering?
The social media giant reported another quarter of strong growth, but record capital expenditure and warnings of even heavier spending next year have spooked the market. While advertising revenue remains robust, Meta’s push into artificial intelligence and virtual reality is consuming cash at a rate that even long-term holders find hard to ignore.
So, what’s really behind the sell-off?
Meta’s strong revenue growth, soaring costs
Meta reported another strong quarter on the surface. Revenue rose 26% year on year to US$51.2 billion, about 8% higher than the prior quarter’s US$47.5 billion. The lift came from a 14% rise in ad impressions and a 10% increase in ad pricing, showing continued strength across Meta’s family of apps.
However, costs are climbing even faster. Expenses jumped 32% to US$30.7 billion, while capital expenditure more than doubled to US$19.4 billion from US$9.2 billion a year earlier.
A large one-off tax charge also distorted results. Meta booked a US$15.9 billion non-cash expense tied to the so-called “Big Beautiful Bill” legislation, slashing reported earnings per share to US$1.05, well below expectations of around US$6.70. Excluding that charge, adjusted EPS would have been US$7.25, beating expectations.
More worrying to markets was guidance for further spending. Management lifted its 2025 capital-expenditure outlook to US$70 billion–US$72 billion, up from a prior US$66 billion–US$72 billion range. For context, Meta spent US$24 billion in 2024. Most of this increase will fund AI infrastructure as CEO Mark Zuckerberg pursues “personal superintelligence”—a long-term vision that investors are still struggling to quantify.
Meta’s vision vs valuation
For all the concern over costs, Meta remains a profit machine. Its core advertising business continues to deliver operating margins near 40%, giving Zuckerberg the freedom to make bold, long-term bets.
However, investors were disappointed by underwhelming fourth-quarter guidance. Management projected revenue of US$56 billion to US$59 billion, with the midpoint implying about 19% growth, a sharp slowdown from the 26% just reported. The midpoint was only slightly ahead of Wall Street forecasts, and after a strong share price rally this past 18 months, markets were clearly looking for more.
One consistent drag on results is Reality Labs, the division building Meta’s virtual and augmented reality products. The segment generated just US$470 million in quarterly revenue but posted an operating loss of US$4.4 billion. Management also warned that fourth-quarter Reality Labs revenue will likely decline year over year because of product timing and earlier shipment recognition, which continues to pressure consolidated margins.
The bigger issue is spending. Beyond the increase in capital expenditure reported for the quarter, Chief Financial Officer Susan Li cautioned that 2026 expenses will rise at a significantly faster rate than 2025, driven by AI infrastructure, cloud costs, and depreciation.
The level of investment is extraordinary and carries meaningful risk. Unlike Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOGL), Meta does not have a cloud platform that can immediately monetise its computing power. Its only path to recoup these costs is through improvements in advertising efficiency and engagement across Facebook, Instagram, and WhatsApp.
Adding to investor anxiety is the execution risk within Meta’s AI division. The Llama 4 model, launched earlier this year, faced criticism for inconsistent performance and alleged benchmark manipulation. Since then, Meta has announced several restructures, including the creation of Meta Superintelligence Labs and the layoff of around 600 staff.
The TL:DR is that Meta is committing tens of billions to a future where AI powers every interaction across its platforms. For now, however, it is absorbing record levels of cost in a race against larger and more diversified competitors.
Cash, conviction, and caution
Meta remains in a strong financial position. It generated US$10.6 billion in free cash flow last quarter and finished September with US$44.5 billion in cash and marketable securities. That gives the company room to keep investing heavily in AI while returning capital to shareholders, including US$3.2 billion in buybacks and US$1.3 billion in dividends.
The recent sell-off appears more about spending optics than fundamentals. Advertising revenue remains resilient, and engagement across Meta’s platforms continues to rise.
Even with softer guidance, high-teens growth on a large base is nothing to dismiss.
Still, the scale of investment is hard to ignore. With capital expenditure expected to surge again in 2026, depreciation and costs will keep climbing, which could weigh on profits. At around mid-20s earnings multiples, the valuation looks fair but not compelling given the uncertainty over AI returns.
In my view, waiting for a better entry point is the prudent move. Meta’s long-term potential is undeniable, but its spending spree and execution risks suggest patience may reward investors more than haste.
