Meta Q3 Earnings Beat Expectations, Yet Stock Plunges 7% on AI Spending Fears

Key points

• Meta's Q3 revenue reached an all-time high of $64 billion, exceeding analyst estimates of $63.3 billion.
• The stock dropped more than 7% despite strong earnings, reflecting broader market skepticism regarding AI data center investments.
• Meta raised the lower end of its capital expenditure estimates to $135 billion, up from $130 billion, with total spending commitments reaching $825 billion.
• The company announced a 2-for-1 stock split via new Class C shares to ensure Zuckerberg retains voting control if California's Proposition 40 passes.
• GAAP earnings per share were $3.83, but would have been $7.40 without legal charges related to a teen mental health settlement.

Background

This follows a volatile period for Meta, including a $9 billion wealth drop for Zuckerberg in late September after Goldman Sachs questioned AI revenue potential. Recent market jitters also affected TSMC despite record profits, highlighting widespread concerns about AI capital expenditure returns.

How outlets are covering it

While Yahoo Finance emphasizes the stock's sharp decline despite strong financial metrics, AP News highlights the positive reception of the Muse AI agent, noting it has surpassed 10 million accounts. Analysts remain largely bullish on Muse's long-term profitability, contrasting with the immediate market sell-off.

Why it matters

The disconnect between Meta's strong earnings and its stock performance signals deep investor anxiety about the sustainability of massive AI infrastructure spending. The stock split also reveals the intersection of corporate governance and state-level tax policy, potentially influencing future billionaire tax legislation.

What to watch

Investors will monitor Meta's ability to improve compute efficiency to realize Zuckerberg's promise of high profitability for Muse. The outcome of California's Proposition 40 on Election Day will determine if the stock split successfully preserves Zuckerberg's control.