Meta Could Be Get Left Behind in the AI Arms Race—and the Stock Is Paying for It

*** ONE-TIME USE *** Meta’s logo is displayed during the Vivatech technology startups and innovation fair, at the Porte de Versailles exhibition center in Paris. (Julien De Rosa / AFP / Getty Images)

Meta Platforms CEO Mark Zuckerberg doesn’t have his head in the clouds—and that might be the problem.

Shares in the Facebook parent are getting crushed Thursday after it unveiled a mixed set of third-quarter earnings last night and doubled down on plans to billions more on artificial intelligence over the coming year.

“Our compute needs have continued to expand meaningfully,” finance chief Susan Li told investors late Wednesday. “We expect to invest aggressively to meet these needs both by building our own infrastructure and contracting with third-party cloud providers. As a result, our current expectation is that Capex dollar growth will be notably larger in 2026 than 2025.”

Those remarks overshadowed both a record quarterly revenue tally of $51.2 billion and a $16 billion tax hit that ate into the group’s bottom line.

“Meta has always been a company willing to spend its way into the future,” said Jacob Falkencrone, global head of investment strategy at Saxo Bank. “This quarter confirms that pattern, only now the bet is far larger and the payoff less immediate.”

Meta’s challenge, however, is that it can’t finance its AI ambitions through cash flows in the way that rivals such as Google, Amazon and Microsoft, which have massive commercial cloud computing divisions that generate billions in revenue, are able to do.

And that leads to more debt.

Bloomberg reported Thursday that Meta is planning to raise $25 billion through a six-part corporate bond offering that will include debt that doesn’t mature until the year 2065.

A deal Meta finished last week, aimed at building a new data center in Louisiana, also moved $27 billion in debt from its balance sheet by structuring it through a special-purpose vehicle.

Zuckerberg hinted at the idea of selling some of its excess computing power to outside customers if the group “overshoots” on its spending and infrastructure plans.

“And then you know, the kind of the very worst case would be that we effectively have just prebuilt for a couple of years, in which case, of course, there would be some loss and depreciation,” he said. “But we’d grow into that and use it over time.”

A lot can change in that waiting period, however, especially given that Meta remains caught in the inherent contradiction of AI itself: If the technology is successful in speeding up tasks and accelerating online efficiencies, users will likely then spend less time on the ad-based platforms such as Facebook and Instagram that drive nearly all of the group’s profits.

It’s also worth noting that the Metaverse, Zuckerberg’s last great tech vision that was launched with great fanfare in late 2020, has been something of a dud.

Reality Labs, the division created to power that alternative universe, lost $4.4 billion last quarter, taking its cumulative red ink past $70 billion in less than five years.

Bank of America analyst Justin Post, however, remains a believer. “We expect Meta stock to be controversial given a limited EPS growth outlook and free cash flow pressure in 2026,” he said in a note published Thursday. “However, we see Meta in a position of strength with massive user network and opportunity to integration compelling AI products (including content creation tools) over the next two years.”

Still, Post lowered his Meta stock price target by $90, taking it to $810 a share, although he kept his Buy rating in place.

Meta stock was down 9.6% at 679.73, a move that would mark the biggest single-day since April 2024.

Write to Martin Baccardax at martin.baccardax@barrons.com