Meta Ramps Up AI Investment, Projects Higher Capital Expenditure

Meta anticipates "notably larger" capital expenses next year due to significant investments in artificial intelligence. This includes an aggressive buildout of data centres to bolster its AI initiatives.

Credit: META

The parent company of Facebook and Instagram reported a 26% increase in third-quarter revenue, exceeding market estimates. However, this growth was surpassed by a 32% rise in overall costs.

Credit: META

Company shares, which had risen 28% earlier this year, fell 8% after the bell. Investors reacted to Chief Executive Officer Mark Zuckerberg’s plans for expanded capital outlays, which are expected to pressure profit margins.

Meta recorded a one-time charge of nearly USD 16 billion, linked to U.S. President Donald Trump’s "Big Beautiful Bill." This charge significantly impacted the company’s third-quarter profit.

Without this charge, net income for the quarter would have reached USD 18.64 billion. The reported net income stood at USD 2.71 billion.

Having embarked on AI efforts later than some rivals, Meta is now focusing intently on achieving superintelligence. This theoretical milestone involves machines surpassing human intellect.

To support this goal, Meta has committed to spending hundreds of billions of USD on constructing multiple large AI data centres. The organisation is preparing for substantial financial commitments to meet extensive computing requirements.

Chief Executive Officer Mark Zuckerberg stated there is "a range of timelines for when people think that we’re going to get superintelligence." He added, "I think that it’s the right strategy to aggressively front-load building capacity, so that way we’re prepared for the most optimistic cases."

If superintelligence takes longer than anticipated, Meta plans to utilise the additional computing power to accelerate its core business operations. In the least favourable scenario, the company would reduce the pace of new infrastructure development for certain periods.

Jeremy Goldman, a senior director at Emarketer, observed that Meta has "found its rhythm again by doing what it does best: scaling attention and monetising it with ruthless efficiency." This follows "a few years of existential hand-wringing."

Goldman also noted that while other companies propose ambitious AI projects, Meta has "quietly turned AI into margin." He explained its "ad tools are sharper, its targeting smarter, and its short-form video business is finally paying off."

To compete with rivals such as Microsoft and Alphabet, Meta has increased its AI spending. The company reorganised its AI initiatives under a "Superintelligence Labs" unit in June.

Chief Executive Officer Zuckerberg has personally directed an extensive talent acquisition drive. Meta stands as one of the primary purchasers of Nvidia’s in-demand AI chips.

Zuckerberg remarked that "Meta Superintelligence Labs is off to a strong start." He added, "I think that we’ve already built the lab with the highest talent density in the industry ... We’re also building what we expect to be an industry-leading amount of compute."

Chief Financial Officer Susan Li stated that employee compensation will be the second largest factor in next year's cost increase. This accounts for the remuneration of staff hired throughout 2025, especially those with AI expertise.

Construction of AI data centre capacity has surged across several major technology organisations, including Meta, Alphabet, Microsoft, Amazon, and OpenAI. The substantial costs associated with building these centres have raised concerns about a potential AI bubble.

These costs also pressure chief executive officers to demonstrate tangible results and encourage them to seek partners for financing. Alphabet and Microsoft have also indicated increased AI investments.

Chief Executive Officer Sam Altman of OpenAI previously expressed a desire for his company to add 1 gigawatt of computing power weekly. This is a significant aspiration, considering each gigawatt currently carries a capital cost exceeding USD 40 billion.

Meta boosted the lower end of its capital expenditure outlook for this year to between USD 70 billion and USD 72 billion, compared with its prior forecast of USD 66 billion to USD 72 billion.

Jesse Cohen, a senior analyst at Investing.com, noted that Meta’s earnings demonstrate "the growing tension between the company’s massive AI infrastructure investments and investor expectations for near-term returns." He added that "rising spending on artificial intelligence capabilities weigh on sentiment despite solid underlying business performance."

Meta continues to leverage its extensive user base. Its robust, AI-optimised advertising platform assists marketers in automating campaigns, enhancing video ad quality, translating advertisements, and creating persona-based images to reach specific customer segments.

The company estimates that over 3.5 billion individuals used at least one of its applications daily last month.

Meta has introduced advertisements on its messaging platform WhatsApp and social network Threads, positioning them in direct competition with platforms like X. Instagram's Reels also vie for advertising revenue against TikTok and YouTube Shorts in the short-video sector.

Meta anticipates fourth-quarter revenue will be between USD 56 billion and USD 59 billion. This is in comparison to analysts' average estimate of USD 57.25 billion, based on data compiled by LSEG.

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• Meta forecasts "notably larger" capital expenses for the upcoming year due to significant investments in artificial intelligence infrastructure.

• The company plans to spend hundreds of billions of USD on constructing massive AI data centres, aiming for superintelligence.

• Increased costs, including employee compensation for AI talent, outpaced third-quarter revenue growth, impacting share performance.

Source: REUTERS