Meta Shares Tank 12% As Fears Of AI Bubble Overshadow Strong Earnings
The shares of Meta Platforms fell over 12% on Thursday to $655.12 apiece after its third quarter earnings as its forecasts 'notably larger' capital expenses next year thanks to investments in artificial intelligence.
The Facebook and Instagram parent reported revenue growth of 26% that beat market estimates, but that jump was outpaced by a 32% increase in costs. In addition, the social media giant has lifted its 2025 capital expenditure guidance with Meta now expecting capex to range between $70 billion and $72 billion. This is higher than the earlier guidance of $66 billion and $72 billion.
In addition, Meta also recorded a $16 billion one-time charge related to US President Donald Trump's 'Big Beautiful Bill' that led to the decline in its third quarter profit.
Meta has doubled down on AI with the target of achieving superintelligence, a theoretical milestone where machines outthink humans. Mark Zuckerberg also defenced the company's ambitious spending plans on Wednesday.
During the earnings call he said Meta is preemptively building up capacity to prepare for the arrival of superintelligence. According to him Meta will be “ideally positioned for a generational paradigm shift in many large opportunities.”
The big tech is facing rising pressure to show some returns on the AI investment so far. This comes amid a soaring valuation and limited evidence of productivity gains.
Meta has also been on a hiring spree in order to compete with rivals like Microsoft and Alphabet. Zuckerberg has personally led the aggressive hiring for AI. This will make employee compensation costs the second largest contributor to the increase in costs next year to account for the compensation of employees that were hired through this year, CFO Susan Li said in a statement.
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