Meta shares sink on rising AI costs
Add Axios as your preferred source to
see more of our stories on Google.
Meta logo. Photo: Ashish Vaishnav/SOPA Images/LightRocket via Getty Images
Shares in Meta sunk 9% in after-hours trading Wednesday after the tech giant said it planned to spend more money than initially expected on AI infrastructure costs this year.
Yes, but: Those investments do appear to be paying off meaningfully in fueling the growth of Meta's ad business.
Zoom in: Meta's top-line revenue, of which the vast majority comes from mobile advertising, far exceeded analyst expectations at $51.24 billion.
- Revenue growth of 26% year-over-year was fueled by sharper ad performance, thanks to Meta's heavy investments in AI.
- The tech giant said the ad impressions delivered across its apps, such as Facebook, Instagram and Threads, increased by 14% year-over-year.
- The average price per ad increased by 10% year-over-year.
Zoom out: AI investments are forcing Meta to spend more money on infrastructure costs and talent, spooking investors.
- The company on Wednesday said it would increase its capital expenditures for 2025 to a range of $70 billion to $72 billion, up from its prior outlook of $66 billion to $72 billion.
- The company expects its full-year 2025 expenses to now be in the range of $116 billion to $118 billion, up from its previous outlook of $114 billion to $118 billion.
- Meta said it expects capital expenditures to be notably larger in 2026 than 2025, driven primarily by infrastructure costs, including incremental cloud expenses and depreciation and employee compensation costs.
- The company also said it had a one-time, non-cash income tax charge of $15.93 billion related to the implementation of President Trump's signature tax and spending legislation. It noted, however, it expects the law to result in a "significant reduction" of its U.S. federal cash tax payments going forward.
Flashback: Coming out of the pandemic, Meta and other Big Tech firms made massive headcount reductions to improve their margins.
- Meta's earnings last quarter represent a notable departure in the AI era from that previous push to be more efficient.
What to watch: Short-form, vertical video advertising continues to be the largest contributor to growth within Meta's ad business.
- In an earnings call with investors Wednesday, CEO Mark Zuckerberg said the company's "Reels" product, a TikTok-like feature that exists on Facebook and Instagram, now represents more than $50 billion in annual ad revenue.
