TLDR
- Meta shares trade at $647.95, up 2.26%, after sliding 25% from October highs on AI spending worries
- Q3 revenue climbed 26.3% to $51.24 billion with ad impressions up 14% and earnings per share gaining 20.2%
- Platform reaches 3.54 billion daily active users with revenue per user jumping 18% year-over-year
- Forward P/E ratio of 22.8x represents discount compared to Nvidia, Alphabet, and Microsoft valuations
- Alphabet deal for lower-cost chips could reduce projected $150 billion AI infrastructure spending in 2026
Meta Platforms sits at $647.95 following a 25% decline from October peaks. The selloff stems from management’s announcement of nearly $150 billion in AI infrastructure spending planned for 2026.
This investment level marks a 108% jump from Q3 2025 figures. Investors worry the spending will drain cash reserves and pressure profitability.
Third quarter earnings tell a more optimistic story. Revenue hit $51.24 billion, surpassing analyst forecasts by 3.7%. The figure represents a 26.3% year-over-year increase.
Ad performance drove results higher. Impressions gained 14% while pricing rose 10%. Earnings per share climbed 20.2% to $7.25 despite infrastructure investments.
Mark Zuckerberg pointed to three AI systems powering recommendations across all platforms. These tools now process over $60 billion in annual ad revenue. The technology is delivering tangible improvements in targeting and engagement.
User time on Facebook increased 5% in Q3. Threads saw 10% higher engagement. Both gains trace back to AI-enhanced content delivery and discovery features.
Platform Metrics Show Continued Growth
Daily active users across Meta’s family of apps reached 3.54 billion. This marked an 8% year-over-year increase. Revenue per user rose 18%, outpacing the user growth rate.
Operating income climbed 17.8% to $20.5 billion. Margins narrowed from 43% to 40% as infrastructure spending accelerated. Net income dropped to $2.71 billion, impacted by a $15.93 billion tax asset write-down.
The tax adjustment relates to U.S. law changes. Excluding this one-time item, the effective rate would sit at 14%. Core profitability remains intact.
Fourth quarter revenue guidance ranges from $56 billion to $59 billion. The midpoint suggests 18.8% growth. Management sees sustained momentum across all properties.
Meta maintains $44.45 billion in cash against $28.8 billion in debt. Free cash flow fell to $1.89 billion in Q3 as spending ramped up. Operating cash flow still improved 21.3% to $30 billion.
Spending Strategy Differs from Past Investments
Current AI investments contrast sharply with previous metaverse spending. Today’s capital supports profitable advertising products rather than experimental technology. AI models enhance existing revenue streams through better ad placement and content recommendations.
News emerged that Meta is negotiating with Alphabet to buy tensor processing units. These specialized chips cost less than Nvidia’s graphics processors. A deal could lower infrastructure expenses while delivering comparable computing power.
WhatsApp presents an untapped revenue opportunity. The platform hosts 1.5 billion daily users but generates minimal income. Early monetization through Status ads and Business API could produce $3 billion annually.
The stock trades at 22.8x forward earnings. Nvidia commands 38x, Alphabet 28x, and Microsoft 33x. Meta’s $1.63 trillion market cap makes it the most affordable megacap tech stock on a P/E basis.
The Family of Apps division operates at 49% margins. Reality Labs continues losing money. Stripping out Reality Labs would push core operating margins above 50%.
Capital spending will hit $70 billion to $72 billion in 2025. The 2026 figure is projected above $100 billion. This level will absorb most operating cash flow generation.
Analysts rate the stock 4.61 out of 5, signaling strong buy conviction. RSI jumped from 23 to 47.5 over one week. The 50-day moving average at $655 represents near-term resistance.
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