Meta’s tax hit and climbing AI costs mask an otherwise strong third quarter
With rising infrastrucuture spending, Meta is betting on growth now, profits later.
• Meta beat Wall Street’s revenue expectations in Q3 2025, but profits plunged sending shares down more than 8% in after-hours trading.
• Advertising remains Meta’s growth engine, with ad impressions up 14% and prices per ad up 10% year over year.
• Total users across Meta’s apps climbed to 3.54 billion, an 8% increase.
• Meta warned that spending will accelerate again in 2026, driven by massive infrastructure expansion for AI.
Meta Platforms just delivered a quarter of contrasts. The social media giant posted stronger-than-expected revenue in the third quarter of 2025, powered by surging ad sales across Facebook and Instagram. Yet a massive one-time tax charge sent its profits crashing, wiping out what could have been one of Meta’s strongest quarters in years.
As the numbers hit the wire, shares tumbled more than 8% in after-hours trading, as investors digested a mix of strong growth and unsettling expenses.
Revenue Soars, but Profits Collapse
At first glance, the results looked stellar. Revenue climbed 26% year over year to $51.24 billion, its highest revenue growth since Q1 2024, easily beating Wall Street’s forecast of $49.6 billion.
The growth was fueled by a vibrant advertising business, with ad impressions up 14% and average prices rising 10%. Daily active users across Meta’s Family of Apps including Facebook, Instagram, WhatsApp, and Messenger also gree, reaching 3.54 billion, an 8% increase from a year ago.
However, beneath those top-line numbers lay a painful bottom line. Net income plunged 83% to $2.71 billion, down from $15.69 billion a year earlier. The steep drop was largely due to a $15.9 billion noncash tax charge, which Meta said was tied to implementing President Trump’s One Big Beautiful Bill Act. As a result, earnings per share fell to $1.05, far below the $6.72 analysts expected.
Without that charge, Meta’s adjusted earnings would have been a more comfortable $7.25 per share, a figure that underscores how strong its core business remains.
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Zuckerberg’s Vision and the AI Push
However, investors weren’t simply reacting to an accounting line. Meta is spending at a pace reminiscent of its early growth years, pouring tens of billions into the race to dominate artificial intelligence.
Chief Financial Officer Susan Li announced that capital expenditures are expected to reach $71 billion this year, up from earlier guidance of $69 billion, with an even steeper climb expected in 2026.
The reasoning, she said, is simple: the company is building the backbone of its AI future. “We expect capital expenditures to grow notably faster next year,” Li explained, pointing to heavy AI infrastructure investments and rising compensation for newly hired AI specialists. Meta ended the quarter with 78,450 employees, up 8% year over year, even after cutting roughly 600 positions in its risk division and superintelligence unit earlier this fall.
Chief Executive Mark Zuckerberg framed this aggressive investment as a long term play for the company. “Meta Superintelligence Labs is off to a great start, and we continue to lead the industry in AI glasses,” he said in the company’s earnings release. “If we deliver even a fraction of the opportunity ahead, the next few years will be the most exciting period in our history.”
Indeed, Meta’s actions reflect that ambition. Over the past year, the company has ramped up spending on data centers, cloud infrastructure, and AI research. It poured $14.3 billion into Scale AI and hired its CEO as Meta’s new Chief AI Officer. It also committed $1.5 billion to a massive data center project in El Paso, Texas, and secured a $27 billion financing deal with Blue Owl Capital to fund its enormous Hyperion data center in Louisiana. At the same time, Meta has been aggressively recruiting AI talent from rivals including OpenAI and Apple, underscoring its determination to lead the next wave of computing.
The Hardware Gamble
At the same time, Meta is pushing deeper into the hardware frontier, though with mixed reactions from analysts. The company’s new Ray-Ban Meta Displays, unveiled at its Connect conference in September, blend augmented reality with wearable fashion, projecting messages and maps directly into the wearer’s view. Early demand was brisk, with Chief Technology Officer Andrew Bosworth reporting that the glasses sold out within days and demos were booked through November.
Louis Eriakha
Even so, some remain skeptical about the long-term potential of Meta’s hardware line. Olivier Blanchard, research director at Futurum, noted that while the technology is innovative, Meta still hasn’t clearly defined how its devices solve meaningful consumer problems. “The hardware is impressive, but the purpose isn’t always clear,” he said. The company’s Reality Labs division, which oversees AR and VR, continues to bleed money, and Meta has already signaled that fourth-quarter results will likely decline due to the product cycle.
The Bigger Picture
This AI and hardware push is stretching the threshold between bold innovation and financial strain, yet it perfectly captures the company’s broader ambition. While rivals like Amazon, Google, and Microsoft are using AI to build tools for for enterprise clients, Meta is turning inward, embedding AI directly into its consumer ecosystem, using AI to refine ad targeting, deepen user engagement, and enhance generative creative tools across its platforms. It’s a strategy that strengthens Meta’s core consumer business but carries an enormous price tag.
So far, the numbers suggest it’s working. Meta’s stock is up 27% year-to-date and 26% over the last 12 months, though that still trails Alphabet’s 43% year-to-date jump and 60% annual increase.
Investors, however, are growing uneasy with the scale of that commitment. Meta’s capital expenditures are set to hit $71 billion this year, and both CEO Mark Zuckerberg and CFO Susan Li have warned that spending will surge again in 2026. Total costs and expenses have already climbed 32% year over year, and with AI projects consuming more cash each quarter, Wall Street is beginning to question how long that level of spending can continue before it erodes margins.
What Comes Next
Looking ahead, Meta guided fourth-quarter revenue between $56 billion and $59 billion, above analysts’ expectations. Yet even with top-line growth accelerating, the conversation has shifted from revenue to returns. Investors want to see when, or if, Meta’s colossal AI bet will begin to pay off.
Zuckerberg, for his part, remains undeterred. He insists Meta is building for the next decade, not the next quarter. For investors, though, that long-term vision may take some getting used to, especially when the price of progress comes in billions.
