The First Major Test Amid the AI Confidence Crisis: Can Meta Navigate the Crossroads of Spending and Monetisation?

Meta’s earnings report, due after the market closes on Wednesday, will serve as a major test of Wall Street’s sentiment towards AI ahead of earnings releases from Google, Microsoft and Amazon next week.

For investors, the decisive factor in this report lies in spending rather than revenue: whether full-year capital expenditure guidance remains unchanged and whether AI investment can be shown to be translating into sustainable revenue growth. The AI-driven rally that has supported equities in recent years has largely been fuelled by strong earnings from major technology groups. However, anxiety is now widespread, particularly during the election period ahead of next month’s US midterm elections. Over the past week, investor confidence in the companies driving the AI boom has taken a severe hit amid concerns that revenue generated by the technology may fall short of expectations.

Meta previously guided for third-quarter revenue of $61 billion to $64 billion, representing growth of 19% to 25% from $51.2 billion a year earlier. The midpoint implies growth of approximately 22%, a marked slowdown from the second quarter’s 28%. Analyst consensus forecasts put revenue at approximately $63.3 billion to $63.9 billion, up 23%–25% year on year.

Although Meta’s third-quarter revenue is expected to exceed $63 billion, investors anticipate slower growth. According to compiled market consensus estimates, the Facebook parent’s operating margin is also expected to narrow to just below 30% as the costs of its AI investments begin to show, while adjusted operating profit is projected to fall to approximately $18.8 billion.
In the second quarter, Meta generated operating cash flow of $31.9 billion, while capital expenditure reached $31.1 billion, leaving free cash flow of just $784 million, far below the $8.549 billion recorded a year earlier. The third quarter could be even weaker: analyst consensus estimates indicate that free cash flow will turn negative at −$9.14 billion, with quarterly capital expenditure reaching $40.97 billion. Full-year capital expenditure guidance remains elevated at $130 billion to $145 billion. With approximately $50.9 billion already spent in the first half, this implies second-half capital expenditure of $79 billion to $94 billion. The funding gap is being covered through debt. In the second quarter, Meta issued $24.9 billion in long-term debt, bringing its outstanding long-term debt to $83.7 billion. Meta’s chief financial officer explicitly stated that a greater proportion of future infrastructure financing would come from debt.

Market Insight:
The market will closely monitor growth in ad impressions and changes in the average price per ad in this earnings report to assess whether AI continues to improve advertising efficiency. Muse, the AI agent launched in September, was a key catalyst for the recent share-price rebound, helping Meta gain approximately 27% during September alone. The market has begun to shift its perception of the company from an AI cash burner to an AI monetiser.