Meta’s Great Bet: When a $7.25 EPS Quarter Warrants a Sell-off

The peculiar theatricality of modern finance was on full display this week as Meta Platforms announced its third-quarter results for 2025. By nearly any measure of operational profitability, the numbers were stellar. Yet, in the after-hours trading session, the company’s stock plunged by roughly 8%. The paradox is easily resolved: Meta's present success has been eclipsed by the colossal, accelerating costs of its future ambition, specifically the infrastructure arms race in artificial intelligence (AI). 

The Exonerated Earnings 

On the surface, Meta's results were a disaster. The company reported diluted earnings per share (EPS) of just $1.05, an 83% drop year-on-year. However, this figure was an accounting phantom, the result of a one-time, non-cash income tax charge of $15.93 billion. This charge was necessitated by a valuation allowance related to the new "One Big Beautiful Bill Act". 

With this distortion stripped away, Meta's underlying financial power was dramatically clear. The adjusted diluted EPS for the quarter would have been a robust $7.25, underscoring the formidable efficiency of the core business. Revenue for the period reached $51.242 billion, a 26% year-over-year increase, driven by a 14% rise in ad impressions and a 10% increase in the average price per ad. The Family Daily Active People metric also grew by 8% to 3.54 billion, cementing the reach of its dominant digital properties—Facebook, Instagram, and WhatsApp. 

The Albatross of Ambition 

While the core advertising engine is firing on all cylinders, the company remains weighed down by its commitment to Reality Labs (RL). That segment, dedicated to virtual and augmented reality, reported an operating loss of $4.432 billion for the quarter, a habitual drag on overall profitability.

Nevertheless, it is not the metaverse, but the burgeoning field of AI that has spooked investors. Mark Zuckerberg, Meta’s chief executive, spoke of the exciting opportunity ahead for Meta Superintelligence Labs, but the fine print in the financial outlook revealed the price of this excitement. 

The CapEx Profligacy 

The company's updated guidance for capital expenditures (CapEx) for 2025 was already concerning, revised upwards to a range of $70-72 billion. But the true shock lay in the projections for the following year. Management disclosed that its "compute needs have continued to expand meaningfully", leading to a decision to "invest aggressively" in both building its own infrastructure and contracting with third-party cloud providers. 

The resulting guidance implies a dramatic shift in capital allocation: CapEx dollar growth in 2026 is expected to be "notably larger" than 2025. Furthermore, total expenses are forecast to grow at a "significantly faster percentage rate" in 2026 than in 2025, driven primarily by infrastructure costs, including incremental cloud expenses and depreciation. Employee compensation for newly hired AI talent will be the second largest contributor to expense growth. 

In essence, Meta is confirming that it will funnel the vast majority of its phenomenal cash generation into a massive, multi-year, strategic investment in AI computing. Investors, wary of the return on investment for such scale, punished the stock for this newly revealed period of sustained, accelerated spending. This profligacy, coupled with increasing regulatory headwinds in the EU over its Less Personalized Ads offering and looming youth-related litigation in the U.S., transforms a stellar earnings report into a story of existential cost. Meta is no longer merely profitable; it is now an investment vehicle for a technological future it intends to dominate, cost be damned.