Meta’s AI Ambitions Spark Investor Anxiety Despite Strong Earnings

A surprising market reaction unfolded on October 30th as Meta Platforms Inc. witnessed a dramatic sell-off, with its stock plummeting over 16% and erasing approximately $307 billion in market capitalization. This decline occurred despite the company reporting exceptionally strong third-quarter results for 2025, leaving Wall Street grappling with the disconnect between present performance and future investment risks.

Meta's Q3 2025 financial report revealed impressive growth metrics that would typically buoy investor sentiment. The social media giant posted revenue of $51.24 billion, a substantial 26% year-over-year increase that comfortably surpassed analyst expectations of $49.41 billion. User engagement remained strong, with daily active people across its family of apps climbing to 3.35 billion, representing a 5% annual gain.

The core advertising business demonstrated particular vigor. The average price per ad increased by 14%, while ad impressions grew by 6%, indicating healthy demand across Meta's advertising platforms. Nevertheless, these positive indicators were largely ignored by the market following the earnings disclosure.

Unprecedented Capital Expenditure Forecasts

The primary catalyst for the investor retreat emerged from CEO Mark Zuckerberg's aggressive artificial intelligence investment strategy. Meta significantly raised its 2025 capital expenditure forecast to a range of $70 to $72 billion, nearly doubling the $39 billion spent in 2024. More alarmingly for some analysts, Chief Financial Officer Susan Li indicated that 2026 expenditures would be "significantly larger" still, with some market experts projecting figures exceeding $103 billion.

These substantial allocations will fund an extensive expansion of AI computational resources, including:

Should investors sell immediately? Or is it worth buying Meta?

• Massive clusters of NVIDIA GPUs
• Custom-developed AI-specific integrated circuits
• Accelerated hiring of artificial intelligence specialists
• Comprehensive development of AI infrastructure

Zuckerberg defended this aggressive posture, stating that building AI capacity aggressively represents "the right strategy." Meanwhile, the company's Reality Labs division—responsible for Metaverse and virtual reality initiatives—continued its pattern of significant losses, reporting $4.4 billion in deficits against merely $470 million in revenue.

Divided Analyst Sentiment and Historical Parallels

The current situation evokes memories of 2022, when Zuckerberg's heavy Metaverse investments triggered a similar market downturn. Several financial institutions promptly adjusted their recommendations following the latest announcements. Oppenheimer downgraded Meta from "Outperform" to "Perform," explicitly referencing the "Metaverse days" in their analysis. Both Bernstein and Citigroup reduced their price targets, expressing concerns about declining profitability projections for 2026.

Despite these cautious stances, not all market observers share this pessimism. The average analyst price target for Meta shares remains at $827, suggesting potential upside of approximately 29% from current levels. Some particularly optimistic experts maintain targets as high as $857, implying possible gains of 37%.

Regulatory Challenges Compound Existing Concerns

Beyond the AI spending concerns, Meta faces additional headwinds from regulatory scrutiny. A Reuters investigation uncovered that roughly 10% of the company's 2024 advertising revenue might originate from fraudulent advertisements and prohibited products. Internal estimates suggest Meta displays approximately 15 billion fraudulent ads daily across its platforms, potentially exposing the company to penalties reaching $1 billion.

Looking ahead, Meta provided Q1 2025 revenue guidance between $39.5 billion and $41.8 billion, projecting growth of 8% to 15%. The central question confronting investors remains when these massive AI investments will generate returns, and whether Meta can demonstrate that this capital allocation will prove more fruitful than its earlier Metaverse ventures. The market awaits convincing answers, and patience appears to be wearing thin.