Meta earnings recap: Stock tumbles 9% after big tax charge and plans to spend even more on AI

Meta CEO Mark Zuckerberg speaks at the 2025 Meta Connect conference in Menlo Park, California, on September 17, 2025.

BENJAMIN LEGENDRE/AFP via Getty Images

Mark Zuckerberg explained Meta’s plan to spend more than ever on AI after the company announced earnings that were dragged down by a $15.9 billion tax charge.

The social media giant and AI hyperscaler reported revenue of $51.24 billion, beating Wall Street’s estimates of $49.5 billion. Earnings per share came in at $6.03, compared to estimates for $6.72. The stock fell more than 9% in after-hours trading.

Meta said that its AI infrastructure spending will continue to rise, and that 2026 cap-ex will be “notably larger” than 2025.

On a call with analysts, Zuckerberg said that a “significantly larger investment” in compute is “very likely to be a profitable thing.” In the “very worst case,” he said, Meta will have pre-built capacity and will absorb the depreciation costs.

Much of the call was spent discussing Meta’s superintelligence lab — for which the company spent heavily to recruit talent — and its ability to monetize. Zuckerberg said that the lab’s research enabled “new technological capabilities” that improved the company’s products.

Meta CFO Susan Li said that a number of “youth-related trials” slated for 2026 could also result in “a material loss.” She also walked through the one-time $15.9 billion tax charge and said Meta expected its taxes to decrease in future years due to the Trump’s Big Beautiful Bill Act.

Catch up on the play-by-play from Meta’s Q3 earnings call with analysts below:

Zuckerberg ends Meta’s analyst call by discussing future AI investment.

Zuckerberg closes out the call by saying that Meta is “seeing the returns” for AI in its core businesses, and that it gives the company “confidence” it should do more. “We want to make sure that we’re not underinvesting,” Zuckerberg says.

Meta’s stock is trading down around 8.5% as the analyst call concludes.

Zuckerberg is bullish on the value of AI — and shouts out Nvidia

“There’s a lot of value to create with AI overall,” Zuckerberg says. He says Nvidia has “extremely well-deserved success” in hardware, and that cloud partners are also finding lots of opportunity. AI app companies are “relatively small,” he says, but there is a “huge opportunity.”

The technology industry has not seen this “rate of new capabilities,” Zuckerberg says. New businesses can be built around these new capabilities, he adds.

Zuckerberg says AI glasses will likely be a “very profitable investment.”

Zuckerberg says work on Meta’s AI Ray-Ban and Oakley collaborations is going “very well” and will likely be a “very profitable investment” if strong sales continue.

Some revenue will come from selling devices, and others will come from services on top of them, he says. The AI will become the “main thing” people are using the glasses for, Zuckerberg says.

Meta wants to expand usage of its automated ad tools.

Meta CFO Susan Li says Advantage Plus ad tech improvements have led to a 14% lower cost-per-lead. Meta is working to broaden adoption of automated solutions, she adds. Advantage Plus is an “ongoing platform,” she says. ARR for advertisers using automated options is $60 billion, and there’s “room to continue growing that,” she says.

Zuckerberg hypes up his talent-dense Superintelligence Lab, monetization pathways.

Zuckerberg says it’s “valuable” that a lot of people use Meta’s AI models, and that there’s a clear correlation between model improvements and usage. He says that the Superintelligence Lab is the “highest talent density lab in the industry.”

The models will “improve monetization” by improving engagement and advertising, Zuckerberg says.

Zuckerberg fields a question about OpenAI’s viral Sora app and explains Meta’s AI strategy.

Zuckerberg says research will enable “new technological capabilities” that will be useful in a variety of products, from an AI assistant to a business AI to feed rankings. The capabilities will also help build “new creative tools,” Zuckerberg says.

The “art of product development,” Zuckerberg says, is figuring out which of these products will be useful. He expects an “exponential curve” in technological capabilities to come.

“I think being best in a given area will drive great returns,” he adds.

Zuckerberg says Meta is trying to “build novel capabilities,” and is not interested in any “check the box” exercises.

Zuckerberg and Li tease future superintelligence products.

Meta is working on a foundation model, but also advancing its inference models, Li says. Even “small-scale improvements” like small ad improvements grow revenue in a meaningful way, she says.

Zuckerberg says that there was no specific timing for new models or products from the superintelligence team to be announced on the call, but that he was “excited to share more.”

Zuckerberg says that the “worst case” for AI spending is just building too far ahead

Mark Zuckerberg defends Meta’s ballooning infrastructure costs, saying the company is intentionally “front-loading” compute investments to stay ahead in the race toward superintelligence. He tells analysts that even if Meta overbuilds its data center capacity, the downside would be limited.

In the “very worst case,” he says, the company would have simply “pre-built for a couple of years,” absorbing the costs through depreciation while eventually growing into the extra capacity. Zuckerberg argues that the greater risk is underinvesting, noting that Meta’s AI research, recommendation systems, and potential external compute offerings could all profitably use far more compute than the company currently has.

Zuckerberg is optimistic on superintelligence’s use.

They “continue to see improvements in usage” of Meta’s AI, Zuckerberg says. Once they have “truly frontier models with novel capabilities,” there is great opportunity, Zuckerberg says. He predicts that the ability to plug in “leading models” will lead to a large amount of use. More intelligent models will also improve the core business, Zuckerberg adds.

“There’s quite a bit more to do,” he says.

Meta’s stock is trading down 8% after hours as Zuckerberg talks compute strategy.

While the stock had ticked up slightly to be trading around -7% mid-way through the call, it’s dipped back down after hours.

Zuckerberg says that Meta keeps needing more compute

A “significantly larger investment” in compute is “very likely to be a profitable thing,” Zuckerberg says. Meta feels “pretty good” that it can convert any compute it doesn’t need into more intelligence and better recommendations.

Li says “we wish we have more capacity today than we do.”

Meta is trying to “plan ahead” to be able to meet necessary capacity in 2026, as well as 2027, and 2028, Li says. Their “foremost priority” is building the “compute that we need” to succeed in AI, Li says.

Meta expects that Reality Labs revenue will be lower than last year.

There are “headwinds to the Quest headsets” since Meta does not have a new headset on the market this year, Li says. Meta is still expecting significant year-over-year growth in glasses in Q4, Li says.

Now onto the live Q&A! The first analyst question is about CapEx.

Li says that growth in CapEx is from all areas, including non-AI spend, but that AI needs are “growing the most.” Li says that expenditures on ad ranking and performance efforts are paying off. There is “very strong year-over-year growth” in weighted conversions, she adds.

Meta is bracing for a jump in costs as AI talent bills come due.

Meta expects spending on AI talent to be one of its biggest cost drivers next year as it continues an aggressive hiring push. CFO Susan Li says employee compensation will be the company’s second-largest contributor to expense growth in 2026, largely reflecting a full year of pay for AI specialists hired throughout 2025 and new technical recruits in priority areas.

She says the increased payroll comes alongside rising infrastructure costs, as Meta’s compute needs have “continued to expand meaningfully” and the company plans to “invest aggressively” in both its own data centers and third-party cloud capacity.

Meta CFO flags that multiple “youth-related trials” could have an impact on the business.

Li says that, depending on the results, they may result in “a material loss.”

Meta says its compute needs are growing.

Meta expects that infrastructure costs will expand, Li says. They expect “invest aggressively to meet these needs,” Meta’s CFO says. She says it will put “upward pressure” on CapEx.

Meta’s financial outlook leans on ad revenue, CFO says.

Li says that advertising revenue will drive growth, partially offset by Reality Labs introducing new Quest devices. Meta lifted its CapEx outlook. Investments in ads and “organic engagement initiatives” will enable “strong revenue growth,” Li says.

Meta is staging data center sites to “spring up capacity.”

The staged data centers will allow Meta to build capacity quickly in future years “as we need it,” Li says.

Meta’s ad tech is improving, CFO says, and AI ad tools are driving performance.

Meta continues to observe “performance improvements” as it combines ad models, Li says. Meta is also piloting a new runtime ads ranking model, she says. It has driven a more than 2% lift in Instagram conversions, she says.

Meta has more generative AI features for advertisers, Li says, including AI-generated music. These tools “drive increased performance,” she says.

Video is boosting Facebook and Instagram, CFO says. Li also touts AI image and video creation.

Li says that global time spent was up on both Facebook and Instagram in the US thanks to video. Meta is developing foundational ranking models to yield more relevant recommendations, Li says.

Users have created 20 billion images with Meta AI products, Li says. Since creating the Vibes AI feed, media creation on the Meta AI app has increased tenfold.

Meta’s headcount is up, Li says

Meta’s headcount as of September 30 was 78,450, representing an 8% year-over-year increase.

The CFO says that Meta was hiring in areas like monetization, infrastructure, Reality Labs, and Superintelligence. The headcount metric included in Meta’s before the recent superintelligence unit layoffs.

Meta CFO walks through the quarterly numbers — including $15.9 billion tax charge.

Advertising demand has increased, Li says. Average price-per-ad was up 10% year-over-year. Reality Labs revenue was up thanks to retailers stocking up on Quest headsets before the holiday season, she says.

While Meta paid a one-time $15.9 billion tax charge, Li adds that the company expects its taxes to go down due to Trump’s One Big Beautiful Bill Act.

Zuckerberg gives update on Meta’s new Ray-Ban Display AI glasses.

Meta’s Ray-Ban Connects sold out in “almost every store” within 48 hours, Zuckerberg says. Demo slots are fully booked up through the end of next month, he adds. Zuckerberg says that Meta will invest more in the area.

People are spending more time on Meta platforms thanks to AI

Meta CEO Mark Zuckerberg says artificial intelligence is already boosting engagement — and profits — across the company’s apps. In his opening remarks, he says AI-powered recommendation systems have led to 5% more time spent on Facebook, and 3-10% more time on Threads, with video viewing on Instagram up more than 30% over the past year.

“Reels now has an annual run rate of over $50 billion,” Zuckerberg added. He said Meta’s “three giant transformers” — AI models powering Facebook, Instagram, and ads — are increasingly driving how people discover content and how advertisers reach them.

Zuckerberg hypes up its Vibes AI feed.

“Retention is looking good” for Vibes, Meta’s AI video feed, Zuckerberg says. Usage is growing week over week, and it is an example of a new type of content, he adds.

Reels and ads have benefited from AI

Zuckerberg says that there have been two eras of social media: content from friends and family, and content from creators. The next “corpus” of content will be from AI, he says. That will make recommendation systems valuable. The ARR for Meta’s AI-powered ad tools has hit $60 billion.

Zuckerberg says Meta Intelligence Labs is “off to a strong start.”

Mark Zuckerberg starts by touting Meta’s social app success and superintelligence team.

Instagram hit 3 billion monthly active users, and Threads hit 150 million monthly actives.

The Meta CEO also says that they are building an “industry-leading” amount of compute. He adds that he wanted to “aggressively frontload” building capacity for superintelligence. In the worst case, he says, Meta can “slow” building infrastructure.

And we’re off! Meta’s analyst call begins

CEO Mark Zuckerberg and CFO Suan Li are on the call. They’ll begin by reading through their prepared remarks before fielding questions from analysts in a live Q&A.

Meta expects capex growth to be “notably larger” next year.

Meta said it expects to spend between $70 billion and $72 billion on infrastructure this year as it builds out the computing power behind its AI ambitions, slightly higher than the $66 billion to $72 billion range it projected last quarter.

The company said its demand for computing capacity has “expanded meaningfully,” prompting bigger investments in data centers and cloud services. Meta added that its infrastructure spending will keep rising next year, with capital expenditure growth in 2026 expected to be “notably larger” than in 2025.

Meta’s massive tax charge

Meta paid a one-time tax charge of $15.93 billion this quarter.

The company expected a “significant reduction” in federal cash tax payments thanks to the One Big Beautiful Bill Act, which passed in July. The act’s implementation allowed for a “valuation allowance against our U.S. federal deferred tax assets,” the company said, causing them to pay a one-time, non-cash income tax charge of $15.93 billion.

Otherwise, Meta says:

Effective tax rate would have decreased by 73 percentage points to 14%, compared to the reported effective tax rate of 87%.
Net income would have increased by $15.93 billion to $18.64 billion, compared to the reported net income of $2.71 billion.
Diluted EPS would have increased by $6.20 to $7.25, compared to the reported diluted EPS of $1.05.

Meta’s Reality Labs continues to burn through billions.

Meta’s Reality Labs revenue was $470 million with an operating loss of $4.432 billion for the quarter. The division houses Meta’s AI consumer hardware, virtual reality gear, and metaverse spending, among other things. That includes Meta’s Ray-Ban Displays, which the company announced in September. Reality Lab’s losses are shrinking, albeit slightly, with the company losing $4.53 billion last quarter.

Meta reports Q3 revenue of $51.2 billion, EPS of $6.03

Third Quarter Results

Revenue $51.24 billion, +26% y/y, estimate $49.59 billion
(Bloomberg Consensus)
Advertising rev. $50.08 billion, +26% y/y, estimate $48.59
billion
Family of Apps revenue $50.77 billion, +26% y/y, estimate
$49.04 billion
Reality Labs revenue $470 million, +74% y/y, estimate $317
million
Other revenue $690 million, +59% y/y, estimate $597.4 million
Operating income $20.54 billion, +18% y/y
Family of Apps operating income $24.97 billion, +15% y/y,
estimate $24.79 billion
Reality Labs operating loss $4.43 billion vs. loss $4.43
billion y/y, estimate loss $5.16 billion
Operating margin 40% vs. 43% y/y
EPS $1.05 vs. $6.03 y/y
Ad impressions +14% vs. +7% y/y, estimate +10.8%
Average price per ad +10% vs. +11% y/y, estimate +10.5%
Average Family service users per day 3.54 billion, +7.6% y/y,
estimate 3.48 billion

Source: Bloomberg

What a Forrester VP will be listening for

Mark Zuckerberg at T-Mobile Arena — Mark Zuckerberg attends the UFC 320 event at T-Mobile Arena on October 04, 2025 in Las Vegas, Nevada.

Chris Unger/Zuffa LLC

Forrester VP and Research Director Mike Proulx told Business Insider that Meta’s third quarter was “flooded with feature updates, device announcements, and operational moves,” with AI as the common thread. “Of particular note is the launch of Meta Ray-Ban Display glasses, which effectively launched a new computing platform,” Proulx said. “During the earnings call, I’ll be listening for an update on sales. I suspect these glasses will mostly attract early tech-curious adopters, and that demos will far outpace actual purchases.”

He added that Reels’ prominence on Instagram continues to grow as the app edges closer to TikTok, and that advertisers are unlikely to pull back spending despite Meta losing brand-safety accreditation from the Media Rating Council, given the platform’s reach and performance.

What is Meta’s TBD crew building?

Meta has quietly assembled one of the most expensive AI teams in Silicon Valley under its Meta Superintelligence Labs division, hiring top researchers from DeepMind and OpenAI and spending billions on infrastructure. Yet the elite unit responsible for building next-generation AI models — literally named TBD — remains a black box. Investors will be listening closely for any clues from Zuckerberg on what, exactly, it’s building.

Meta has suggested its new Ray-Ban Displays are selling well

Meta Ray-Ban smart glasses in a display case — The Meta Ray-Ban smart glasses

Joan Cros/NurPhoto via Getty Images

In September, the company debuted its new Ray-Ban Displays at the Connect conference. The glasses come with a built-in screen that displays text messages, maps, and captions over the real world.

The Displays went on sale in late September. Within days, CTO Andrew Bosworth posted on Threads that the glasses were sold out and demos were booked up through November at “almost every store.”

Expect further questions on the analyst call about the sales mix between the screen-free Meta Ray-Ban AI glasses and the more expensive Ray-Ban Displays.

Meta and OpenAI’s rival AI feeds

In September, Meta released its new short-form AI video feed, Vibes. Some tech founders and execs quickly roasted it as “AI slop.” Days later, OpenAI released its new video generation model, Sora 2. Its own short-form Sora app quickly topped the App Store charts.

OpenAI has said that 1 million people downloaded the Sora app within five days, while Similarweb data indicates that the Meta AI app’s downloads surged by 100,000 after the Vibes feed launched. We might get some further data points on Vibes engagement among Meta’s users on the earnings call.

Meta’s changing head count

Illustration of Meta, Instagram and Facebook logos — The Meta employee made the comments in a Blind post on Wednesday

Getty Images

Meta has faced some dramatic changes to its headcount in the past few months. After doling out big contracts to staff up its superintelligence unit, Meta cut 600 jobs from it. Meta also cut staff in its risk division as the company automated its review process, per a memo viewed by Business Insider.

These cuts come after January’s broader layoffs, when Meta cut 5% of its workforce — roughly 3,600 employees — that the company labeled “low performers.”

It’ll be interesting to see if Zuckerberg or CFO Susan Li talks about plans for future head count growth — or if they anticipate head count to remain flat or decrease in the coming quarters.

Keep track: How many times AI is mentioned vs. the metaverse

When Facebook rebranded to Meta in 2021, Zuckerberg declared a “very long-term bet” on the metaverse. The company then spent billions on projects like Horizon. The fervor has since quieted, though the company announced a new AI feature to build 3D worlds with text at its September Meta Connect event.

On Monday, Meta CTO Andrew Bosworth told employees the company was reshuffling its metaverse unit in a memo viewed by Business Insider. “The priority of the metaverse work remains unchanged, and it continues to be a companywide priority,” he wrote.

Listen for any changes to the AI capex number for 2025

Mark Zuckerberg said Meta could spend up to $72 billion this year on AI infrastructure. Will Zuck raise that number even higher? It’s possible, but if all this AI capex spend is really hurting Meta’s free cash flow and margins, investors might start feeling uneasy.

That’s why they’ll be laser-focused on Meta’s advertising business, which still makes up most of the company’s earnings. If ad numbers are healthy — and right now, expectations from Wall Street are high — then Zuck probably has more runway for his AI bets.

DA Davidson is eyeing comparisons with Alphabet

Tech analysts at DA Davidson wrote ahead of Meta’s earnings that they’re watching for how Meta does compared to its Magnificent Seven peer Alphabet, which also reports results on Wednesday.

“We expect META to continue outgrowing Google’s ad revenue, though growth may decelerate on tougher comps (including elections),” the firm said in a client note. “We do not expect growth at Google to decelerate significantly, though we are monitoring OpenAI closely, as we believe the likely introduction of advertising around ChatGPT may create a headwind for Google Search advertising growth.”

DA Davidson has an $825 price target and a “Buy” rating on Meta stock.

CFRA sees Meta meeting high expectations, thinks capex will remain lofty

A visitor stands by a sign posted in front of Meta headquarters on January 29, 2025 in Menlo Park, California.

Justin Sullivan/Getty Images

CFRA analysts think Meta earnings will deliver.

“Ahead of Q3 2025 results on October 29, we believe consensus views are well aligned with reality, as META’s AI investments allow it to outpace the broader digital ad market,” CFRA said in a note. “We currently see META posting a growth pace of about 21%-22% in Q3.”

Expect Meta’s AI spending plans to stay elevated, in the $66-72 billion range for 2025, the firm said.

CFRA rates the stock a “Buy” and has an $880 price target for the stock, representing potential upside of 16%.

Meta is a top pick for JPMorgan, with analysts bullish on AI strategy and superintelligence

JPMorgan’s Doug Annuth wrote that he’s bullish on the social media company’s AI push ahead of earnings. After a big round of layoffs in Meta’s AI unit, there’s a lot of anticipation for updates on the superintelligence strategy.

“We’re bullish on AI Ad improvements, Reels, & Video. META continues to execute well across its AI strategy & push toward personal superintelligence prioritizing ads, engagement, business messaging, Meta AI, & AI Devices.”

The bank has an $875 price target on the stock, implying 15% upside.

BofA says AI outlook will be ‘critical’ for sentiment

A woman wears the Meta Quest 3 headset — A woman wears the Meta Quest 3, the standalone mixed-reality headset, on March 5, 2025.

Joan Cros/NurPhoto via Getty Images

Bank of America analysts say they’re watching what Meta says about AI, and that a disappointing update on monetization or future ambitions could sour investor sentiment.

They also said that they’ll be looking at comparisons with Alphabet, which also reports results on Wednesday.

“Meta will report concurrently with Alphabet & we think investors will focus on revenue growth differentials & relative margin performance,” Bank of America analysts wrote.

The bank continued: “Meta should compare well, we expect 23% y/y growth vs 13% for Google properties in 3Q, with Meta possibly accelerating on AI driven improvements in targeting, deeper CRM integrations, video model unification & growing advertiser adoption of Gen-AI-powered creative tools.”

The bank has a $900 price target on Meta stock, a 19% increase from current levels.

Wall Street is predicting Q3 revenue of $49.5 billion and EPS of $6.72

THIRD QUARTER

Revenue estimate $49.57 billion
Advertising rev. estimate $48.57 billion
Family of Apps revenue estimate $49.02 billion
Reality Labs revenue estimate $317 million
Other revenue estimate $597 million
Operating income estimate $19.47 billion
Family of Apps operating income estimate $24.77 billion
Reality Labs operating loss estimate $5.18 billion
Operating margin estimate 39.3%
EPS estimate $6.72
Ad impressions estimate +10.8%
Average price per ad estimate +10.5%
Average Family service users per day estimate 3.48 billion
FOURTH QUARTER
Revenue estimate $57.35 billion
Capital expenditure estimate $21.13 billion
YEAR
Total expenses estimate $115.63 billion
Capital expenditure estimate $69.29 billion

Source: Bloomberg

Read the original article on Business Insider

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