Meta shares sink 11% as CFO says they will continue to add compute in 2028 and beyond
Meta shares are getting smoked after the company showed no signs of slowing down AI spending.
The decline accelerated after CFO Susan Li said Meta's longer-term strategy aims to allow continued compute growth in 2028 and beyond. CEO Mark Zuckerberg is also betting on consumer personal agents, which he said are going to end up being and extremely important and massive market.
Traders have little faith in Zuckerberg's ability to identify technology trends after the Metaverse disaster. The company has also been unable to compete with leading models but Zuckerberg said a substantial amount of its compute will go towards trainging models.
What Meta is good at is advertising and the CFO said they're using LLMs to better match ads to users. Zuckerberg also repeated as he has previously taht Meta is getting "many offers" for compute at a premium to what it paid. So far, they only indication of that is selling some to Anthropic but the market worrise that Anthropic and OpenAI are the only buyers.
The quarter itself wasn’t disastrous. Revenue rose 28% year-over-year to $60.8 billion, slightly ahead of expectations, as ad impressions climbed 14% and the average price per ad increased 12%. Meta’s core advertising machine continues to perform exceptionally well but nearly every dollar of that strength is being redirected into spending.
Capital expenditures reached $31.1 billion in the quarter, up from $17.0 billion a year earlier including finance-lease payments. Free cash flow collapsed to just $784 million from $8.55 billion. Meta raised the bottom of its 2026 capital-spending forecast to $130 billion from $125 billion while leaving the top at $145 billion.
I might have though that holding the top line would be viewed positively by the market given Google's increase but that's not the case. The market just doesn't believe Meta will be able to win in AI, nor in Zuckerberg's promise of 'personal superintelligence'.
Earnings per share fell to $6.18 from $7.14 and missed the $7.19 consensus. Some of that was explainable: Meta absorbed $2.4 billion in legal charges and $1.18 billion in severance expenses. Even so, the operating margin collapsed to 31% from 43%, while total expenses rose 55%. The company has been under fire for losing high quality software engineers and mismanaging human resources.
The main problem though is the AI spending looks endless and monetization is nebulous. Investors had already braced for an enormous 2026 capital-spending number. What they didn’t hear was a peak this year or next. Instead, management described an environment where capacity remains tight, near-term infrastructure is especially valuable and longer-term utilization is difficult to predict.
The balance-sheet signals underline the change. Meta issued $24.9 billion of long-term debt during the quarter and repurchased no shares, compared with $10.2 billion of repurchases a year earlier. Long-term debt has risen to $83.7 billion, nearly matching its $90.3 billion of cash and marketable securities.
Nikkei also had a compelling report about off-balance sheet debt that is very close to full recourse. That could add up to nearly $420 billion.
There was also a modest guidance disappointment. Meta forecast third-quarter revenue of $61–64 billion. The $62.5 billion midpoint was below the roughly $63.1 billion consensus. The underlying business remains spectacular. Advertising revenue rose 27% to $59.4 billion and daily users increased 3% to 3.60 billion. Instagram DAUs hit an astonishing 2 billion.
Meta was previously a high-margin advertising company using some of its surplus cash to fund AI. It is increasingly becoming a capital-intensive AI infrastructure company whose advertising business must fund the buildout.
The market can tolerate extraordinary spending when the payoff is visible and the spending peak is approaching. What it struggles to value is a management team promising continued capacity growth into 2028 and beyond while admitting that long-term usage curves remain difficult to predict.
If shares open at these levels, they'll be just above the March low and if that cracks, we're back to testing the Liberation Day lows. That's an enormous loss of faith in a business that's growing core advertising by 30% y/y.
This article was written by Adam Button at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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