Meta Platforms (META 1.18%) dropped sharply after its late-October earnings report, even though the social media and digital advertising giant posted another quarter of strong growth. Investors instead zeroed in on management's latest comments about capital spending, which paint a much heavier investment cycle than the market had been expecting.
Meta's third-quarter revenue growth was impressive, powered by higher ad impressions and ad prices across its social media properties. Operating income also grew at a double-digit rate, and the core business continues to generate substantial cash. Yet alongside those healthy results, management raised its 2025 capital expenditures outlook again and outlined a 2026 spending plan that looks borderline egregious.
Massive capital expenditures don't change Meta's dominance in social media, but they do change how investors should think about its earnings power over the next several years. The scale of this build-out is large enough that it has become increasingly challenging to treat Meta as the asset-light compounder it once was.
Image source: Getty Images.
Soaring capital expenditures
Meta finished 2024 with $39.2 billion in capital expenditures, including principal payments on finance leases. This measures up to total 2024 revenue of $164.5 billion, which was up 22% year over year. With capital expenditures coming in at 7% of revenue, this was already a sizable investment program. But when the company reported those 2024 results in January, management guided 2025 capital expenditures to a range of $60 billion to $65 billion, largely to support AI (artificial intelligence) and data center investments.
Moving forward to the second quarter of 2025, management nudged its capex forecast for the year up to $66 billion to $72 billion, and the company noted that the midpoint implied roughly $30 billion of year-over-year capex growth. And then the third-quarter 2025 release went further, lifting the range again to $70 billion to $72 billion. At the midpoint, Meta is now planning to spend around $71 billion on capital expenditures this year -- close to an 80% increase compared with 2024.
In the third quarter alone, Meta's capital expenditures reached $19.4 billion, while free cash flow fell to $10.6 billion from $15.5 billion a year earlier, even as revenue grew 26% year over year. Meta is still generating plenty of cash, but increasingly more of its cash is now being recycled into servers, data centers, and related infrastructure. This is real capital that could be used for incremental share repurchases and dividends.
It gets worse
What really changes the story, though, is management's language about what comes next.
"[O]ur current expectation is that capital expenditures dollar growth will be notably larger in 2026 than 2025," said Meta CFO Susan Li's during the company's third-quarter earnings call. "We also anticipate total expenses will grow at a significantly faster percentage rate in 2026 than 2025, with growth driven primarily by infrastructure costs, including incremental cloud expenses and depreciation."
It's clear, therefore, that management expects a steep step up in capex once again.
What level of capital expenditures in 2026 does Li's commentary imply? Using 2024's $39.2 billion in capital expenditures as a starting point and the midpoint of the 2025 guidance range at about $71 billion, dollar growth in 2025 is roughly $32 billion. If 2026 capex dollar growth is "notably larger" than that figure and lands somewhere in the upper $30 billions or low $40 billions, total capital expenditures in 2026 could reasonably reach the neighborhood of $110 billion. That would be close to triple the 2024 level in just two years.
NASDAQ: META
Key Data Points
The investment thesis isn't as certain
The resulting change in the company's operating model is already occurring. Depreciation and amortization in the third quarter of 2025 already ran higher as a percentage of revenue than the year-ago period, and the company is telling investors that infrastructure costs and depreciation will be major drivers of expense growth in 2026. This combination suggests earnings growth could slow materially once the full cost of today's capex surge flows through the income statement.
Meta's investment case historically rested on a very different profile. The company transformed a set of social platforms with enormous user bases into a highly profitable ad business, achieving an operating margin of 42% for the full year 2024, up from 35% in 2023. That margin expansion came as the company was cutting costs and refocusing on what CEO Mark Zuckerberg called the "year of efficiency."
Today's capital plan, on the other hand, resembles the profile of a capital-intensive infrastructure provider. Meta is building data centers and buying specialized chips to ensure enough compute capacity for its AI ambitions.
None of this means Meta is suddenly a weak business. The ad platform is performing well, with third-quarter advertising revenue up 26% year over year. The company also continues to generate substantial free cash flow even after heavy investment -- and AI advancements and integrations could unlock more ad revenue over time.
But with the stock trading around 29 times earnings, the current valuation assumes that Meta can sustain robust profit growth despite much heavier depreciation. When capital expenditures are marching toward an estimated $110 billion in 2026, and a meaningful share of that spending may go into infrastructure that looks more commodity-like than Meta's core ad products, it becomes harder to view the stock as an obvious buy at this price.
