Meta’s AI Ambitions Weigh on Investor Sentiment Despite Robust Earnings

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Meta Platforms has seen its share price surrender all gains made following a strong quarterly report, declining approximately 10% in a matter of days. This pullback occurred even as the social media giant posted record revenue and provided an optimistic forecast in late January. The market's reaction highlights investor concerns that the company's massive spending on artificial intelligence infrastructure is offsetting its current operational strength.

The company's financial performance for the fourth quarter of 2025 was undeniably powerful. Revenue climbed 24% year-over-year to $59.9 billion, surpassing the $58.5 billion consensus estimate from market analysts. Earnings per share came in at $8.88, also exceeding the projected $8.23.

Advertising, which constitutes 97% of total revenue, generated $58.1 billion. User engagement metrics were equally positive, with the number of daily active people across Meta's family of apps increasing by 7% to 3.58 billion. This growth helped drive a significant 18% rise in ad impressions.

Looking ahead, Chief Financial Officer Susan Li provided first-quarter 2026 revenue guidance in the range of $53.5 billion to $56.5 billion. At the midpoint, this represents year-over-year growth of roughly 30%, which management attributed to continued strong demand from advertising clients.

Profitability Pressured by Aggressive Investment Plans

The impressive top-line growth, however, was accompanied by a sharp expansion in expenses. Costs surged 40% during Q4 to $35.1 billion, causing the operating margin to contract from 48% to 41%.

For the full year 2026, Meta has outlined a capital expenditure plan of $115 billion to $135 billion—nearly double the $72.2 billion spent in the prior year. Total expenses are projected to reach between $162 billion and $169 billion. CEO Mark Zuckerberg is making a deliberate, long-term bet on scaling AI capabilities, a strategy that is expected to pressure profitability in the near term.

Reality Labs Continues Its Loss-Making Trajectory

The company's metaverse-focused division, Reality Labs, remains a significant drag on earnings. It reported an operating loss of $6.02 billion on revenue of $955 million for the quarter. Cumulative losses since the end of 2020 now approach $80 billion. Company leadership indicated that losses for 2026 are expected to remain at a similar magnitude.

Further clouding the outlook are ongoing legal and regulatory challenges. Meta's quarterly filing noted regulatory obstacles in the European Union and ongoing proceedings in the United States that could have a "material impact on business and financial results." Additional uncertainty stems from child safety litigation in New Mexico and data privacy reviews concerning WhatsApp in India.

Key Q4 2025 Metrics:

• Revenue: $59.9 billion (+24% year-over-year)
• Earnings Per Share: $8.88
• Daily Active People: 3.58 billion
• Operating Margin: 41%
• Q1 2026 Revenue Guidance: $53.5–56.5 billion
• 2026 Capex Plan: $115–135 billion

Meta finds itself navigating a complex path. Its core business operations are performing robustly, yet its aggressive investment in artificial intelligence is compressing margins. The coming quarters will reveal whether these multi-billion dollar bets yield their intended return. The company is scheduled to report first-quarter 2026 results in late April.