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Meta Platforms Inc.'s aggressive spending on artificial intelligence (AI) has recently rattled investors, drawing uneasy comparisons to the company's costly metaverse investments a few years back. Although Meta's latest earnings beat expectations on several fronts, the market fixated on the company's capital expenditure forecasts, which are projected to reach up to $72 billion this year and rise even further by 2026. CEO Mark Zuckerberg acknowledged these hefty outlays during the earnings call but defended them as a strategic move to rapidly build capacity and stay ahead in the AI race.
In the days following the report, Meta's shares took a nosedive, marking their worst four-day slump since November 2022. The stock dropped nearly 17%, erasing approximately $307 billion in market value. This decline mirrors the investor backlash seen during the 2022 metaverse selloff, when concerns over excessive spending sent Meta's stock tumbling 77% from its 2021 peak. Many investors now worry that Meta is repeating past mistakes by allocating huge sums to long-term projects such as the Superintelligence Labs, which currently lack clear paths to profitability.
Industry experts have voiced skepticism. Tiffany Wade from Columbia Threadneedle Investments criticized the spending as potentially frivolous, stressing that investors are growing impatient with Meta's approach. Jason Helfstein of Oppenheimer downgraded the stock, pointing out the parallels between current AI investments and the metaverse-era expenditures that previously unsettled the market. Unlike Microsoft, Amazon, and Alphabet, which have clearer enterprise-focused AI opportunities, Meta lacks a diversified business model tied to AI-driven growth beyond advertising, leaving some analysts concerned about its future revenue streams.
Meta's financial metrics also reflect these unease. Its return on invested capital dropped from a record 32% the previous quarter to 25% in Q3, though still relatively strong compared to 2023 levels when metaverse spending peaked. However, concerns about deteriorating earnings quality persist, fueled by off-balance-sheet debt and sizable write-offs that widened the gap between net and pro-forma earnings. Bank of America highlighted these issues, suggesting caution as such trends often precede weaker returns.
On the bright side, Meta’s revenue growth remains robust, expected to rise 21% this year and sustain double-digit growth through 2028. Net earnings growth is projected to rebound in 2026 after a flat 2025. The company's stock valuation also looks attractive against other Big Tech peers, trading at just 19 times estimated earnings — below its 10-year average and the broader S&P 500 multiple. Some investors like David Katz of Matrix Asset Advisors view the current selloff as a buying opportunity, arguing that AI presents a clearer, more tangible pathway to profitability compared to the metaverse experiment.
Meanwhile, broader market sentiment reflects mixed feelings about AI investments. Microsoft’s shares dipped mildly despite strong results, as its Azure cloud offers a more obvious revenue path from AI spending. Semiconductor stocks experienced sharp declines amid concerns about overvaluations following a rapid rally fueled by the AI boom. Other tech giants like Amazon and Alphabet rallied on their earnings, indicating that investor confidence varies widely depending on perceived strategic clarity and execution.
Meta faces a pivotal moment as it navigates this high-stakes AI investment phase. The company must balance ambitious innovation with delivering tangible returns to regain investor trust and avoid repeating the painful lessons from its metaverse past.
