According to CNBC, Meta Platforms reported strong third-quarter results with adjusted earnings of $7.25 per share on $51.24 billion in revenue, beating analyst expectations of $6.69 per share and $49.41 billion in revenue. Despite these better-than-expected numbers, shares dropped nearly 9% after the company increased its 2025 capital expenditures outlook to $70-72 billion from $66-72 billion previously. The spending hike prompted immediate analyst reactions, with Oppenheimer and Benchmark downgrading Meta to perform and hold respectively, citing concerns about “significant investment in Superintelligence despite unknown revenue opportunity” that mirrors previous Metaverse spending patterns. Several other Wall Street firms lowered their price targets while maintaining ratings, creating a divided analyst landscape as the company prepares for substantial AI investments.
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The Metaverse Parallel That Has Investors Worried
The comparison to Meta’s previous Metaverse investments is particularly telling. When Oppenheimer analysts reference the 2021/2022 spending pattern, they’re pointing to a period where Meta poured billions into Reality Labs with minimal near-term returns. The current AI spending surge represents a similar high-risk, long-term bet where the revenue timeline remains uncertain. What makes this situation different, however, is that AI infrastructure spending has more immediate applications across Meta’s core advertising business through improved targeting and automation. Still, investors remember the stock’s 70% decline in 2022 following similar aggressive spending announcements, creating understandable skepticism about another massive capital outlay.
The Capital Expenditure Reality Check
Meta’s revised capital expenditure guidance represents one of the largest corporate investment programs in technology history. The $70-72 billion range for 2025 alone exceeds the market capitalization of many Fortune 500 companies. More concerning to analysts is the guidance that 2026 spending will be “notably larger” than 2025’s already elevated levels. This creates a multi-year investment cycle where free cash flow will likely decline despite revenue growth, putting pressure on valuation multiples. The fundamental question analysts are asking is whether Meta can achieve sufficient returns on this investment to justify the compressed earnings growth through 2027.
The Changing Competitive Landscape
Benchmark’s downgrade highlights a critical shift in the artificial intelligence competitive environment. Unlike previous technology cycles where Meta competed primarily with Google and Amazon in digital advertising, the AI race includes well-capitalized newcomers like OpenAI and Tesla, plus established giants with massive AI research budgets. The concern is that Meta’s investments in areas like V-JEPA 2 models and robotics may not produce differentiated returns when competing against organizations with similar funding but potentially superior technology. This creates a scenario where Meta could be spending billions just to maintain competitive parity rather than achieving market leadership.
The Valuation Mathematics Problem
Multiple analysts noted the challenge in justifying Meta’s current valuation multiple given the compressed earnings outlook. As Oppenheimer pointed out, Meta now trades at the same 21x 2027 earnings multiple as Google, despite Google having more predictable earnings growth. This creates a fundamental valuation disconnect where investors are being asked to pay a premium multiple for a company whose earnings growth will be heavily suppressed by spending for the next several years. The mathematical reality is that even with revenue growth acceleration, the massive opex and capex increases will likely keep earnings per share growth in the single digits through 2026, making current multiples difficult to sustain without clear visibility into 2027 returns.
The Product Catalyst Timeline Question
While several maintaining analysts pointed to potential product catalysts including new LLMs, content creation tools, and business AI solutions, the timing mismatch between spending and revenue generation creates significant uncertainty. Most of these products won’t generate material revenue until 2026 at the earliest, while the spending is happening now through 2025. This creates a valley of disappointment where investors must wait 18-24 months to see if these investments pay off, all while watching earnings growth stagnate. The fundamental risk is that even if these products succeed, they may not generate sufficient revenue to offset the massive investment required to develop them.
The Strategic Investment Pattern Concern
Beyond the immediate numbers, there’s a broader concern about Meta’s strategic investment pattern. The company appears to be following a boom-bust cycle of aggressive spending followed by efficiency measures, then returning to aggressive spending. This pattern creates volatility in both operations and stock performance that makes the company difficult to value consistently. Investors who weathered the 2022 downturn are now facing another period where spending growth outstrips revenue growth, creating deja vu concerns about management’s ability to balance innovation investment with shareholder returns.
