Meta's performance plummeted after the earnings release! One-time taxes dragged down Q3 net profits by 83%, while AI investments continued to surge, causing concern in the market.

Due to a one-time non-cash income tax expense of nearly $16 billion recorded in the third quarter of 2025, Meta Platforms (META.US) saw a substantial decline in quarterly profits. At the same time, the company stated that it plans to significantly increase total spending in 2026 and continue to maintain historically high levels of investment in data centers and other infrastructure to drive its artificial intelligence (AI) development goals. In response to this news, as of the time of writing, Meta's shares on Wednesday dropped over 7% after hours. The financial report shows that thanks to strong performance in Facebook and Instagram advertising business, Meta's third quarter revenue increased by 26% year-on-year to $51.24 billion, higher than the market expectation of $49.6 billion. Among them, advertising revenue was $50.82 billion, a 26% increase year-on-year; other business revenue was $6.9 billion, a 59% increase. The company's Reality Labs division, responsible for the metaverse business, saw a 74% year-on-year increase in revenue to $4.7 billion, but operating losses reached $4.32 billion, roughly in line with the same period last year. Affected by the implementation of the "Build Back Better Act," Meta recorded a one-time non-cash income tax expense of $15.93 billion in the third quarter, resulting in a steep 83% year-on-year decline in net profit to $2.709 billion; earnings per share were $1.05, far below the market expectation of $6.72. Excluding this impact, the company's net profit for the quarter would have been $18.64 billion, with earnings per share reaching $7.25. However, Meta stated that due to the implementation of the new tax law, it is expected that federal cash tax expenses in the United States for 2025 and subsequent years will be "significantly reduced." More importantly, Meta has raised its capital expenditure forecast. The company's CFO Susan Li stated in a press release that capital expenditures for the year are expected to reach $70-72 billion, up from the previous forecast of $66-72 billion. As of the current year, Meta's capital expenditures have reached $50 billion, and the upward revision of the full-year capital expenditure forecast indicates that the company will continue to increase investments. Susan Li also indicated that capital expenditures in 2026 will be "significantly higher" than in 2025, and total spending next year will increase at a "significantly faster percentage rate." Susan Li stated, "As we begin planning for next year, it is clear that our compute needs have significantly increased from last quarter's expectations. We are still developing our capacity plans for next year, but we anticipate continuing to invest aggressively to meet these needs - including building our own infrastructure and contracting with third-party cloud service providers. We expect this will further increase next year's capital expenditures and overall expense plans." Meta believes that its AI investments are starting to bear fruit, helping the company achieve more precise targeting in advertising and content recommendations. However, CEO Mark Zuckerberg still faces pressure to prove that this investment, which will amount to billions of dollars by the end of this decade, can bring higher returns. During the earnings call after Meta's financial report release, Zuckerberg expressed a continued thirst for computational resources. He stated that the company will expand its infrastructure scale next year, striving to "proactively build capacity" to ensure that Meta has industry-leading computing power in the field of AI. Zuckerberg said, "We need to make sure we're not falling behind on investments." However, the company is still controlling costs in some areas. Meta recently laid off around 600 employees from its AI division - Meta Superintelligence Labs - to improve department efficiency. In contrast to Zuckerberg's optimism, many Wall Street analysts are cautious about Meta's potential overspending. Analyst Jesse Cohen said, "Meta's earnings reveal an increasing tension between the company's massive AI infrastructure investments and investors' expectations for short-term returns. While the core business performance is strong, the increased spending on artificial intelligence investments is dampening market sentiment."