Meta's Stock Dips Amidst Increased Spending Projections for 2026
Shares of Meta Platforms Inc. (META) have experienced a significant downturn following the company's announcement of increased spending projections for 2026, triggering investor concern and a notable market reaction. The stock has slumped considerably since the company signaled aggressive investment in artificial intelligence (AI) infrastructure.
The sell-off was fueled by Meta's third-quarter earnings report, where the company indicated that capital expenditures (CAPEX) would rise to between $70 billion and $72 billion for 2025, a jump from the $39 billion spent in 2024. More concerning to investors was the warning from Meta's CFO, Susan Li, that CAPEX would be "notably larger" in 2026 than in 2025 as the company continues to build out its AI capabilities. While Meta did not provide specific figures for 2026, analysts predict that Meta's CAPEX spending will exceed $100 billion.
This surge in projected spending has sparked fears of overspending and uncertain returns, drawing comparisons to Meta's previous investments in the metaverse. Investors are wary of a repeat of the 2022 scenario, when heavy outlays on the metaverse led to a significant stock decline. The company's Reality Labs, which focuses on AR/VR, has incurred multi-billion dollar losses.
The market's reaction reflects a broader concern that Meta's operating expenses are outpacing revenue growth, leading to lower operating margins. While Meta's revenue jumped 26% year-over-year in the third quarter, profitability decreased as expenses climbed at a faster rate. Some analysts also point to the company's falling return on invested capital as a cause for concern.
Despite the market's negative reaction, some analysts believe the sell-off presents a buying opportunity. They argue that Meta's AI investments are already generating measurable results and driving tangible improvements in its core business. Moreover, analysts suggest that Meta's long-term AI-driven growth will position the company to strengthen its dominance in the social media landscape for years to come. Several analysts have issued optimistic price targets for Meta, suggesting a strong upside in shares.
It is also argued that Meta can afford to spend billions on Reality Labs, due to impressive operating margins. The company has the ability to reduce spending in the future.
The situation remains fluid, and it remains to be seen whether Meta's aggressive AI investments will pay off in the long run. For now, investors are grappling with the uncertainty surrounding the company's spending plans and their potential impact on future profitability.
