Financial Outlook | The Cost of AI Ambitions: Can Meta (META.US) prove that its expenses are justified with performance?

Meta Platforms (META.US) will release its third-quarter financial report after the market closes on Wednesday, with the progress of its artificial intelligence business becoming a focus of attention. Investors will likely closely monitor signals related to whether its investments have paid off. The social media giant has set ambitious artificial intelligence goals, but can it convince investors to continue supporting its high spending? To support data center construction and pay high salaries to the artificial intelligence talent it has attracted, Meta has raised its capital expenditure expectations twice this year. Now, it may need to deliver more impressive performance to make a lasting impression on the market. Analysts at Bank of America last week said they expect Meta's revenue to surpass $50 billion thanks to growth in advertising revenue, slightly higher than the Wall Street consensus of $49.54 billion. If achieved, this would mark a new revenue record. At the same time, the average earnings per share expectation for Meta is $6.71, which, while still showing growth year-on-year, is expected to decline from the previous quarter. Recent reports about layoffs and a freeze on hiring at Meta may suggest that the company is already feeling some pressure to control costs. This month, Meta announced that it will cut around 600 positions at its Superintelligence Labs, representing a small portion of the department's thousands of employees, in order to make the company's artificial intelligence organization "more flexible and responsive." The layoffs will affect the Facebook Artificial Intelligence Research (FAIR) department and teams related to product-oriented AI and AI infrastructure. In an internal memo, Meta's Chief AI Officer Alexandr Wang stated that reducing the team size will accelerate decision-making efficiency, and enhance the breadth of responsibilities, influence, and output weight of team members. Also this month, Meta announced a $27 billion private financing agreement with Blue Owl Capital (OWL.US), the largest private capital partnership in Meta's history, to be used for the company's largest data center project to date. According to sources, the financing funds are not directly borrowed by Meta, but are raised by the special purpose entity (SPV). Meta will serve as the developer, operator, and tenant of the project, which is expected to be completed by 2029. So far this year, Meta has outperformed many other large tech peers in convincing investors to support its artificial intelligence goals. This week's earnings report may be the next important test to prove that its revenue growth is sufficient to support its current level of spending. Ahead of the financial report release, Wall Street analysts have generally been optimistic about this social media giant. Of the 21 analysts surveyed, all but one have given a "buy" rating, with an average target price close to $873, representing approximately an 18% upside from last Friday's closing price. Since 2025, Meta's stock price has risen by more than a quarter, making it one of the better-performing members of the "Magnificent 7" in the US stock market, second only to NVIDIA Corporation (NVDA.US) and Alphabet Inc. Class C's parent company Alphabet (GOOGL.US).