Meta’s third-quarter earnings report did not land well with investors.
In after-hours trading, Meta shares tumbled nearly 9% on Wednesday during the investor call.
Meta beat Wall Street estimates with a reported revenue of $51.24 billion. However, a $15.9 billion tax charge, an earnings per share that missed expectations, and some concerns over whether Meta’s huge investments in AI will translate to profit, weighed down the company’s shares.
From Meta’s burgeoning capital expenditure to what is driving revenue for the company, here are the biggest takeaways from the social media giant’s call with analysts.
1. The cost of ‘novel capabilities’
Meta CEO Mark Zuckerberg and CFO Susan Li spent a good part of the call discussing the company’s soaring AI infrastructure spending.
Meta now expects to spend between $70 billion and $72 billion on infrastructure this year, and also expects expenditure growth in 2026 to be “notably larger” than in 2025 as AI workloads continue to rise.
Li said during the call that Meta plans to “invest aggressively” in both its own data centers and third-party cloud capacity, with infrastructure costs putting “upward pressure” on capital expenditures.
“In the very worst case,” Zuckerberg said, Meta would have simply “pre-built for a couple of years,” absorbing the extra costs through depreciation while it grows into the added capacity. The greater danger, he said, is “underinvesting” in computing.
“We’re really trying to build novel capabilities,” said Zuckerberg. “This is not like a check-the-box exercise.”
Employee pay is also climbing. Li said compensation will be the second-largest contributor to expense growth in 2026, reflecting a full year of salaries for AI specialists hired in 2025 and new technical recruits in “priority areas.”
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“Compute and talent are where we’re leaning in hardest,” Li said. “That’s what’s going to drive Meta’s AI advantage.”
2. Reality Lab woes
Meta’s Reality Labs is still bleeding billions, though losses have narrowed slightly from the previous quarter.
The unit, which houses Meta’s virtual reality hardware, AI-powered devices, and metaverse initiatives, reported $470 million in revenue and an operating loss of $4.43 billion for the quarter, compared with a $4.53 billion loss in the second quarter.
Li said Reality Labs’ revenue got a temporary boost as retailers stocked up on Quest headsets ahead of the holiday season. But she acknowledged “headwinds” to the Quest headsets this year, since Meta hasn’t released a new model.
“We’re still expecting significant year-over-year growth in AI Glasses revenue in Q4 as we benefit from strong demand for the recent products that we’ve introduced,” said Li, “But that is more than offset by the headwinds to the Quest headsets.”
3. Addressing the tax charge
Meta took a massive $15.9 billion one-time tax charge this quarter, tied to changes under President Donald Trump’s One Big Beautiful Bill Act, which passed in July.
The company said the new tax law’s implementation allowed for a “valuation allowance against our US federal deferred tax assets,” resulting in a one-time, non-cash income tax expense.
Li said that despite the hefty charge, Meta expects its overall tax burden to drop going forward. The company anticipates a “significant reduction” in federal cash tax payments thanks to provisions in the new legislation.
According to Li, without the one-off charge, Meta’s effective tax rate would have fallen from 87% to 14%. Li said the adjustment “positions us favorably from a cash tax standpoint” as Meta continues its heavy investments in AI infrastructure and data centers.
4. AI is booting engagement
Zuckerberg said AI is paying off across the company’s core apps as well as for advertisements.
Zuckerberg told investors that AI-powered recommendation systems have increased time spent on Facebook by 5%, on Threads by 10%, and boosted video viewing on Instagram by more than 30% over the past year.
“As video continues to grow across our Apps, Reels now has an annual run rate of over $50 billion,” said Zuckerberg. “Improvements in our recommendation systems will also become even more leveraged as the volume of AI-created content grows.”
Li added that Meta’s generative AI features for advertisers, including AI-generated music, are also “driving increased performance” and are expected to be able to offset losses generated by Reality Labs.
Whether the profit AI generates in these areas could offset Meta’s planned capex spending remains to be seen.
5. AI glasses are a hot commodity
Ahead of the call, some analysts had been skeptical about whether the AI-glasses hype would translate to sales. Forrester VP and research director Mike Proulx told Business Insider that while early adoption of Meta’s glasses will likely be driven by “tech-curious” consumers, demos may still “far outpace actual purchases.”
On the call, however, Zuckerberg said the company’s AI-powered glasses could become a “very profitable investment” as sales of its new line surge.
During the call, Zuckerberg told analysts that Meta’s collaborations with Ray-Ban and Oakley are “going very well” and that revenue will come not just from device sales but also from the services layered on top of them.
Zuckerberg said the AI capabilities built into the glasses will soon become “the main thing people are using them for,” and that Meta’s new Ray-Ban Displays sold out in “almost every store” within 48 hours, with demo appointments booked through the end of next month.
