Meta shares fall after boosting spending plans for AI bet

Meta Platforms Inc. shares fell after chief executive Mark Zuckerberg told investors the company would bet even more aggressively on artificial intelligence.

During its quarterly earnings report Wednesday, the social-media giant boosted its capital spending plans for the year and announced a new class of nonvoting stock that could ultimately be used to help pay for acquisitions and other expenses.

The moves indicate that Meta has confidence its already-stratospheric spending on AI is bearing fruit. After struggling to persuade investors to accept ballooning costs, Meta has made headway with its technology in recent months, especially with a new AI agent called Muse. Zuckerberg pointed to that progress as reason to keep plowing ahead.

“Our investments are paying off, the core business is strong, and we’re seeing velocity across the board,” Zuckerberg said in Wednesday’s report.

Still, investors were skeptical. Meta shares fell more than seven per cent to as low as US$648.26, and its credit risk gauge reached a record high. The price of five-year credit default swaps on the company’s debt, which increases as investor concern grows, rose as much as 8.9 basis points to around 119.3 basis points a year, according to ICE Data Services.

The results kicked off a technology earnings season that is likely to focus on runaway AI expenditures and attempts by companies to get a return on investment. Google parent Alphabet Inc., Microsoft Corp. and Amazon.com Inc., three of the other biggest spenders on AI data centres, are slated to deliver their quarterly results next week.

At Meta, capital expenditures will be US$135 billion to US$145 billion in 2026, the Menlo Park, Calif.-based company said, raising the bottom end of the range from US$130 billion.

The company also said its future spending commitments rose to US$825 billion, including leases, computing deals and energy agreements.

Shares of Meta had gained about six per cent this year through the close in New York on Wednesday.

Meta’s new class of shares will be distributed to existing investors through a stock dividend. Holders will get one share of the new stock in what will essentially be a two-for-one stock split, Meta said. It expects trading of the new shares to begin in January.

The stock will also be a tool to help further Meta’s expansion. It will be used for capital fundraising, employee compensation and potential takeovers, Meta said.

This isn’t the first time the company — formerly Facebook Inc. — has attempted such a plan. In 2017, it scrapped an unpopular effort to create a class of shares that would have helped Zuckerberg retain voting control of the business he co-founded. At the time, Facebook had a valuation of roughly US$500 billion. Today, Meta’s market capitalization stands at nearly US$1.8 trillion.

In announcing the new stock class, Meta said the nonvoting shares would ensure that Zuckerberg continues to lead the company “into the next era.”

Zuckerberg touted the success of Muse during a conference call with analysts, saying that more than 10 million people have used the service in the United States and Canada over its first six weeks.

“Now that Muse has clear product market fit, we are entering a new phase and a more operational phase that is focused on scaling it,” Zuckerberg said.

As part of the report, Meta said fourth-quarter revenue would be US$73 billion to US$76 billion. Analysts had estimated US$73.6 billion on average, according to data compiled by Bloomberg.

Third-quarter revenue rose 26 per cent to US$64.6 billion, topping the US$63.3 billion estimate. Earnings amounted to US$3.83 a share in the period, beating the US$3.57 projection.

Over the past year and a half Zuckerberg has refocused the company’s efforts on advancing in the AI race. The push has included committing hundreds of billions of dollars to build out the infrastructure needed to support its models and overhauling its AI unit under head Alexandr Wang.

Earlier this month, Meta launched Muse Wonder, a long-awaited new AI model with “frontier capabilities” that its leadership said put it on par with OpenAI’s ChatGPT and Anthropic PBC’s Claude when it comes to coding or working through financial or legal questions. If Meta’s claims hold up to outside testing and Muse Wonder gains traction with researchers and developers it would mark a significant turnaround for the company, whose models last year fell flat in Silicon Valley.

The Muse personalized AI assistant debuted in September. It is designed to automate a range of tasks for consumers, including shopping, buying movie tickets and scheduling appointments. Muse quickly rose to the top of mobile app charts.

But that success has come with a cost. Meta said the AI agent requires a great deal of computing power. That is one of the reasons the company said it hasn’t launched the agent globally yet.

Zuckerberg said that Muse should remain free for most people, with Meta making money through transaction fees paid by businesses, subscriptions for heavy users and customers who want access to the most advanced models and paid tools for companies that rely on Muse at work. “If compute efficiency continues improving quickly for another few years, which we think is highly likely, then Muse will be highly profitable over multiple years,” he added.

Meta, owner of Instagram, Facebook and WhatsApp, generates most of its current revenue from advertising.

Zuckerberg also said that CJ Desai will lead Meta’s new enterprise platform, the business the company is building to sell access to its models and AI services.

Meta still has a lot of spending left to do before the end of the year. Even though the midpoint of its capital expenditures outlook is US$140 billion, the company has only spent about US$86 billion through the first nine months.

Meta also signalled it will take longer to see returns from some of its newer AI investments, even as its core business helps absorb the cost.

“While these investments will take longer to generate returns than those in our core business,” chief financial officer Susan Li said, “the breadth of monetization opportunities and internal efficiencies gives us confidence in their long-term potential.”

Meta is cutting costs elsewhere as it bulldozes money into AI. Headcount was down 15 per cent year over year following significant job cuts, and the company has pledged to narrow losses at Reality Labs, its hardware division.

Meta expects Reality Labs losses of as much as US$19 billion this year, before falling to around US$15 billion in 2027 as it reallocates spending toward other priorities — “primarily AI.”