Meta’s Q3 Earnings: Big Revenue, Bigger Bills – Is Meta Stock Now A Sell?
Rising AI investments and a heavy tax hit in Meta's third-quarter earnings overshadowed the company's strong revenue growth, sending shares
Quick overview
- Meta's Q3 results revealed a significant drop in net income, primarily due to a massive tax adjustment and rising AI infrastructure costs.
- Despite a 26% year-over-year revenue growth driven by strong ad demand, earnings per share fell short of Wall Street expectations, leading to a 7% drop in stock price.
- The company has raised its capital expenditure forecast for 2025 to $70–72 billion, indicating a focus on expanding AI capabilities despite concerns over profitability.
- Investors are increasingly worried that Meta's aggressive spending on AI may not yield sustainable profits, raising questions about the company's long-term growth strategy.
Rising AI investments and a heavy tax hit in Meta’s third-quarter earnings overshadowed the company’s strong revenue growth, sending shares plummeting more than 7% in after-hours trading and reigniting investor concerns about runaway expenses.
Stock Rally Breaks as Cost Concerns Deepen
After months of steady gains in 2025, Meta’s uptrend came to an abrupt halt this week. The stock slid sharply on Wednesday night after the company revealed plans to ramp up AI infrastructure spending, signaling that its aggressive expansion may be eroding profit margins faster than expected.
Investors, once optimistic about Meta’s AI-driven growth story, are now questioning whether the company’s escalating costs can be sustained without damaging its earnings outlook.
Revenue Beats, But Profit Crumble
Meta’s Q3 earnings report told a troubling story beneath the upbeat revenue numbers. While total revenue grew 26% year-over-year, driven by stronger ad demand, the company’s earnings per share collapsed to just $1.05 — far below Wall Street’s expectations.
The sharp decline was fueled by skyrocketing AI infrastructure costs and a massive one-time tax charge under the Big and American Act. Despite management’s assurances that these costs are “strategic,” the market saw them as evidence that Meta’s spending is spinning out of control.
AI Success Comes with a Price Tag
Meta’s ad business remains robust, but its success is increasingly overshadowed by the cost of maintaining it.
The company reported a 14% increase in ad impressions and a 10% rise in average ad prices, confirming that its AI-driven ad tools are performing well — but the profits from this growth are being eaten away by the capital required to sustain the AI ecosystem.
Even as Meta’s AI models boost engagement, the company’s margins continue to tighten, leaving investors wondering how long growth can offset expense inflation.
Runaway Spending Sparks Alarm
In a move that stunned analysts, Meta lifted its 2025 capital expenditure forecast to $70–72 billion, up from an already aggressive $66–72 billion, citing the need for expanded AI compute and data centers.
At the same time, full-year expense guidance rose to $116–118 billion, signaling that cost discipline is taking a back seat to ambition.
The company’s tone suggested that even higher spending may be required in 2026 — a warning that rattled traders already wary of shrinking profitability.
Meta Q3 Earnings Report
- Meta’s Q3 net income plunged 83% to $2.71 billion, mainly due to a $15.93 billion non-cash tax adjustment related to new U.S. tax regulations on deferred tax assets.
- Excluding this one-time impact, net income would have been $18.64 billion, with adjusted EPS at $7.25.
- The effective tax rate spiked to 87% from 12% last year, but adjusted for the tax charge, it would have stayed near 14%.
- Meta emphasized that this adjustment does not impact actual cash taxes, which are expected to remain low in upcoming quarters.
- Operating income increased 18% to $20.54 billion, though the operating margin slipped to 40% from 43% due to rising expenses tied to staffing and infrastructure.
- Total costs and expenses jumped 32% YoY to $30.71 billion, signaling continued investment pressure.
Strong Growth in Users, Ads, and Cash Position
Daily active people reached 3.54 billion, up 8% year-over-year, reflecting sustained engagement across platforms.
- Ad impressions rose 14%, while average ad prices climbed 10%, fueling robust revenue momentum despite ongoing regulatory scrutiny.
- Meta ended the quarter with $44.45 billion in cash and marketable securities.
- Operating cash flow hit $30 billion, and free cash flow totaled $10.62 billion, allowing Meta to maintain strong liquidity.
- The company returned $4.49 billion to shareholders, including $3.16 billion in buybacks and $1.33 billion in dividends.
- Capital expenditures reached $19.37 billion, underscoring Meta’s drive to expand data center and compute capacity.
- Headcount rose 8% to 78,450 employees, mainly in AI and technical roles.
AI Infrastructure to Drive 2026 Extra Spending
- Meta projects Q4 2025 revenue between $56–59 billion, supported by ad demand and seasonal trends
- Reality Labs revenue may soften after the Quest 3S launch, with early retail stocking weighing on year-end figures.
- Currency is expected to add a 1% tailwind to total revenue.
- Total 2025 expenses are forecast at $116–118 billion, slightly above prior estimates.
- Capex guidance raised to $70–72 billion, reflecting heavier investment in AI infrastructure and data centers.
- Meta anticipates an acceleration of spending in 2026 as computing power and AI workloads expand further.
Outlook: Big Vision, Bigger Risks
Meta’s relentless pursuit of AI dominance may be impressive on paper, but the financial strain is starting to show. The company’s massive spending spree, combined with uncertain returns from its metaverse and AI projects, leaves investors exposed to further downside.
Unless Meta can prove that these investments will translate into sustainable profits, its once-celebrated growth story risks turning into a cautionary tale of overreach in the AI race.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
Save