As Meta’s AI Spending Soars, Can Q3 Earnings Convince Wall Street?

Meta Platforms enters its third-quarter earnings report on Wednesday as one of the market’s top-performing technology giants, with its stock gaining over 25% this year. This rally, fueled by broad enthusiasm for artificial intelligence, now faces a critical test. Having convinced investors to support a massive increase in capital expenditures—expanding spending projections twice this year for data centers and top AI talent—the company must now demonstrate that these costly investments are translating into tangible revenue growth. The upcoming report will be a pivotal moment, determining if the market’s faith in Meta’s long-term AI strategy is justified or if the spending has outpaced its returns.

The High Bar of Analyst Expectations

Wall Street sentiment remains overwhelmingly bullish heading into the report, with 20 out of 21 analysts surveyed by Visible Alpha rating the stock a “buy.” The consensus price target near $873 suggests a potential 18% upside from its recent close, reflecting high confidence. This optimism is pinned on expectations of record-breaking revenue, driven by a resilient advertising business. The Street consensus estimate sits at $49.54 billion, though some analysts, like those at Bank of America, are calling for a beat above $50 billion. However, the profit picture is more nuanced. While the mean earnings per share estimate of $6.71 would represent strong year-over-year growth, it also signals a potential sequential decline from the previous quarter, putting Meta’s cost-management efforts under intense scrutiny.

Balancing AI Ambition with Cost Discipline

The central narrative for investors is the balance between Meta’s ambitious AI goals and its financial discipline. The company’s heavy spending is necessary to compete in the AI arms race, funding everything from infrastructure to poaching top-tier talent with hefty compensation packages. Investors will be parsing the results for commentary on the monetization of these investments, including progress on its AI-powered glasses and other generative AI features. This justification is crucial, as recent reports of targeted layoffs and hiring freezes suggest underlying strains in the company’s efforts to rein in costs. The market has, thus far, given Meta more latitude than some of its tech peers, but that patience requires validation in the form of margin preservation or a clear path to AI-driven profitability.

Looking ahead, Meta’s performance on Wednesday will have implications far beyond its own stock price, acting as a key bellwether for the broader “Magnificent Seven” group. The report will not only need to meet lofty revenue expectations but also provide a convincing strategic narrative that its costly AI buildout will generate the next wave of growth. Any disappointment in advertising revenue, which is needed to fund these ventures, or any signal that expenses are growing untethered from returns, could trigger a significant market reassessment. Conversely, a strong ad performance combined with clear evidence of AI engagement paying off could validate the bullish thesis and solidify Meta’s position as a leader in the next technological transformation.