Meta could get left behind in the AI arms race—and the stock is paying for it

Shares on Facebook parent get crushed on thursday after reporting a mixed bag of third-quarter earnings last night and doubling down on multibillion-dollar plans for artificial intelligence for next year.

“Our computing needs have continued to grow meaningfully,” finance chief Susan Li told investors late Wednesday. “We expect to make aggressive investments to meet these needs, both by building our own infrastructure and by contracting with third-party cloud providers. As a result, our current expectation is that the increase in the Capex dollar will be significantly larger in 2026 than in 2025.”

These statements both overshadowed the record quarterly revenue figure of $51.2 billion and $16 billion tax hit This had a negative impact on the group’s profits.

“Meta has always been a company willing to invest in the future,” said Jacob Falkencrone, head of global investment strategy at Saxo Bank. “This quarter confirms that pattern, but now the bet is much bigger and the payoff is less immediate.”

But Meta’s problem is that it can’t fund its AI ambitions through cash flow, unlike rivals like Google, Amazon, and Microsoft. huge commercial cloud computing divisions Those who earn billions in income can do this.

This leads to more debt.

Bloomberg reported Thursday that Meta plans to raise $25 billion through a six-part corporate bond offering that would include debt that doesn’t mature until 2065.

A deal Meta completed last week to build a new data center in Louisiana was also structured through a special purpose vehicle, removing $27 billion of debt from its balance sheet.

Zuckerberg hinted at the idea of ​​selling some of its excess computing power to external customers if the group “goes overboard” with its spending and infrastructure plans.

“And, you know, the worst case would be if we actually pre-built it for a few years, in which case there would of course be some loss and depreciation,” he said. “But over time we would get used to it and use it.”

But a lot could change in that wait, especially given that Meta is fixated on the paradox inherent in AI: If the technology succeeds in speeding up tasks and boosting online efficiency, users will likely spend less time on ad-based platforms like Facebook and Instagram, which generate nearly all of the group’s profits.

It’s also worth noting that Metaverse, Zuckerberg’s last great tech vision that launched with great fanfare in late 2020, was a complete flop.

Reality Labs, the division created to power this alternate universe, lost $4.4 billion last quarter, pushing its cumulative red ink to more than $70 billion in less than five years.

But Bank of America analyst Justin Post believes so. “We expect Meta shares to be controversial given the limited EPS growth outlook and free cash flow pressure in 2026,” he said in a note published Thursday. “But we see Meta in a strong position with its massive user network and the opportunity to integrate interesting AI products (including content creation tools) over the next two years.”

Post still lowered its price target on Meta stock by $90 to $810 per share, but left its Buy rating unchanged.

Meta stock fell 9.6% to 679.73; This would be the largest single-day move since April 2024.