Key highlights:
- Meta shares dropped over 12%, marking the worst intraday loss since October 2022.
- Q3 earnings per share missed estimates due to a one-time $15.9 billion tax charge.
- Meta raised its capital expenditures outlook to up to $72 billion for 2025, fueling investor concerns.
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Meta (META) suffered a sharp stock decline of 12.3% on Thursday, plunging to approximately $658.50 following its Q3 earnings report. This marks the company’s largest single-day drop since a 24.5% plunge in October 2022, despite topping revenue expectations.
Q3 earnings miss due to tax charge
While Meta reported revenue of $51.2 billion, beating Wall Street expectations of $49.5 billion, its earnings per share (EPS) came in at just $1.05, a staggering 84% below consensus estimates of $6.72. The shortfall was largely attributed to a one-time $15.9 billion tax expense stemming from the Trump “One Big Beautiful Bill Act,” which Meta said will result in reduced federal cash tax payments going forward. Excluding this charge, Meta claimed its adjusted EPS would have been $7.25.
Soaring AI investments rattle investors
The steep drop in Meta’s share price also reflects growing investor unease over the company’s aggressive capital spending on artificial intelligence.
Meta increased its 2025 capital expenditures guidance to a range of $70 billion to $72 billion, up from a previous forecast of $66 billion to $72 billion. CFO Susan Li signaled that spending will accelerate even further in 2026, driven by infrastructure and employee compensation costs.
CEO Mark Zuckerberg emphasized that the spending spree is part of Meta’s preparation for “superintelligence,” claiming the company is “ideally positioned for a generational paradigm shift.” Recent investments include a $14.3 billion stake in Scale AI, a $27 billion financing deal for the Hyperion data center, and a $10 billion cloud agreement with Google. Additionally, Meta hired Scale AI CEO Alexandr Wang to head its new Superintelligence Labs division.
Mixed analyst reactions
Despite the dramatic sell-off, analysts maintain a cautiously optimistic outlook. Raymond James lowered its price target from $900 to $825 while retaining a Strong Buy rating, citing Meta’s efficient ad returns and strong monetization potential. Barclays and BofA Securities also trimmed their targets due to mounting AI-related costs, while Seaport Global and Stifel acknowledged solid fundamentals but flagged near-term margin pressures.
Meta’s Reality Labs division, responsible for VR and AR products, reported an operating loss of $4.4 billion, slightly better than expected. Sales reached $470 million, beating estimates, but questions remain over the long-term viability of its hardware ambitions. Industry analysts like Olivier Blanchard remain skeptical, noting Meta’s leadership may lack a clear vision for how its hardware solves meaningful problems for consumers.
Market context
Even with Thursday’s decline, Meta shares remain up 10% year-to-date and 26% over the past 12 months. However, these gains trail competitors like Alphabet, which has posted a 60% increase over the same period. As Meta deepens its AI strategy, investor sentiment appears increasingly tied to whether these substantial investments will yield long-term profitability without eroding margins.
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Source: https://coincodex.com/article/75740/meta-stock-plummets-over-12-amid-soaring-ai-investments-and-one-time-tax-hit/
