Mark Zuckerberg (L) and Chris Hughes (R) creaters “Facebook” photographed at Eliot House at Harvard University, Cambridge, MA. on May 14, 2004. Facebook was created in February 2004, 3 months prior to this photograph. (Photo by Rick Friedman/Corbis via Getty Images)
Corbis via Getty Images
Meta Platforms stock is up 8% this year – lagging Nasdaq’s 22% rise.
This follows a disappointing third quarter earnings report that set Meta apart from its peers – Amazon, Google and Microsoft – in the derby to spend billions on AI data centers. Unlike rivals, Meta has yet to build measurable revenue from its AI investment.
Does the market’s reaction to Meta’s latest earnings report make the stock a bargain? Here are three reasons to avoid Meta stock:
Meta lags Amazon, Google and Microsoft in race to monetize AI capital spending.Meta CEO Mark Zuckerberg’s weak innovation track record.Meta is borrowing to pay for its AI capital spending.
Meta views its AI spending as vital. The company said more spending is crucial for the company’s pursuit of AI that vastly outperforms human capabilities – dubbed superintelligence, Zuckerberg told the Wall Street Journal.
Meta will use any extra computing resources from that investment to speed up the company’s core business. “That way, if superintelligence arrives sooner, we will be ideally positioned for a generational paradigm shift in many large opportunities,” Zuckerberg said.
“If it takes longer, then we’ll use the extra compute to accelerate our core business. In a worse case scenario, “we would just slow building new infrastructure for some period while we grow into what we build,” he added.
Meta’s Divergent Third-Quarter Earnings Report
Four technology giants – Google, Microsoft, Meta and Amazon – all raised forecasts for their 2025 AI capital spending to a total of $380 billion, according to CNBC. All of the companies – with the exception of Meta and Microsoft – received a round of applause from investors.
Here are why the winners enjoyed a rise in their stock prices following their latest earnings last week:
Amazon Stock Up 8% since Oct. 30
Amazon stock rose after beating on revenue and earnings and a $7 billion boost to its capital expenditure budget for the year.
AWS revenue grew 20% – topping analyst expectations, total sales rose 13% beating analysts’ consensus by about $2.4 billion while earnings per share of $1.95 topped estimates by 38 cents, noted CNBC.
Amazon will spend $125 billion on AI capex – a figure expected to rise in 2026. “We’ll continue to make significant investments, especially in AI,” Amazon CFO finance Brian Olsavsky said on the earnings call. “We believe it to be a massive opportunity with the potential for strong returns on invested capital over the long term,” he added.
Google Stock Up 5% Since Oct. 29
Alphabet, Google’s parent, beat earnings expectations and boosted its capex forecast. In its Q3 report, Alphabet hit a record — over $100 billion in revenue – enjoying growth in both its core advertising business and Google Cloud boosted by AI demand.
Alphabet raised its capex forecast 15% to $92 billion at the midpoint of a range, reported CNBC.
Microsoft Stock Down 2% Since Oct. 29
Microsoft lost ground among investors while exceeding estimates and increasing its capex growth estimate above analyst expectations.
The company’s fiscal Q1 revenue and earnings beat expectations – reaching $77.6 billion driven by a 40% rise in Azure revenue – and EPS of $4.13.
Yet Azure demand exceeded capacity – limiting growth. This may explain why Microsoft forecast a 45% increased to a minimum of $94 billion in capex for fiscal 2026 after previously saying growth would slow, wrote CNBC.
Meta Stock Down 13% Since Oct. 30
Despite beating expectations and raising guidance Meta’s stock was hit harder – falling 13% since reporting on October 30 – due to an increase in capex without a clear way of generating significant new revenue from the investment. This drop cost Zuckerberg more than $25 billion in his net worth, noted Forbes.
Revenue rose 26% in the third quarter to $51.24 billion – $1.8 billion above estimates; adjusted EPS of $7.25 was 56 cents higher than consensus; and Meta’s Q4 revenue guidance of $57 billion – the midpoint of a range – exceeded the StreetAccount estimate, according to Zacks.
Meta’s capex forecast – of $71 billion, $2 billion more than previously forecast – spooked investors due to a lack of clear revenue upside. “Meta doesn’t have a cloud service and lacks a clear revenue story that’s tied to its AI investments,” reported CNBC.
When investors asked Zuckerberg about how Meta would generate revenue from its investment, his reply was vague. “The right thing to do is to try to accelerate this to make sure that we have the compute that we need, both for the AI research and new things that we’re doing, and to try to get to a different state on our compute stance on the core business,” Zuckerberg told analysts on the investor call.
While Meta said AI improves targeting in the company’s core digital ads business, one analyst did not agree. Oppenheimer downgraded the stock to hold — citing an “unknown revenue opportunity,”according to CNBC.
Moreover, Oppenheimer sees Meta’s pursuit of superintelligence as potentially following the same path as the company’s metaverse – which motivated Zuckerberg to change the name of the company.
The metaverse has not paid off. In 2021 and 2022, Meta invested heavily in what he touted as spending the future of computing. After burning billions “of dollars a quarter on its investments in augmented reality,” wrote CNBC, Meta’s Reality Labs unit lost $4.4 billion in the latest quarter on $470 million in revenue.
Another analyst similarly lacks confidence in Meta’s AI bets. “The total dollar spend is just kind of what hangs us up a little bit,” Zacks Investment Management analyst Brian Mulberry told the Journal. “They have to start doing a better job of showing us when that comes back to the balance sheet.”
“The return on invested capital is definitely a huge metric for us and the fact that they are being a little bit cagey and not quite upfront with what exactly is going on doesn’t help soothe those fears,” Mulberry added.
Meta is not slowing its investment in data centers. The company plans to spend “$600 billion on data centers and other infrastructure in the U.S. through 2028,” Zuckerberg said at a recent White House dinner, according to the Journal.
Mark Zuckerberg’s Innovation Drought
Questions about Meta’s ability to earn a return on its superintelligence bet come in the context of a simple problem: With the exception of the company’s advertising model, Zuckerberg has very little success as an innovator.
He is better at execution, strategic acquisitions, and disciplined monetization. He adapted the social networking concept developed by others, created News Feed and targeted advertising at scale, and most successfully identified and acquired Instagram before it became a threat – transforming a $1 billion gamble into $63 billion in estimated 2025 annual revenue, noted eMarketer.
Meta appears far from a revenue generating product. “Our view is that when we get the new models that we’re building in MSL in there and get like truly frontier models with novel capabilities that you don’t have in other places, then I think that this is just a massive latent opportunity,” Zuckerberg told investors in the earnings call.
This response contrasts significantly with OpenAI which is bringing in $20 billion in annual revenue from ChatGPT – while losing money. Unlike Meta, “there really is a fast-growing product at the bottom of all the OpenAI hype. A fast-growing ARR figure goes a long way to answer questions,” noted TechCrunch.
To be fair, Meta is working on promising experiments. These include the Meta AI assistant, which has more than a billion active users abetted by three billion active users on Facebook and Instagram – which is not a serious competitor to ChatGPT. Meta also offers Vibes video generator – which did boost daily active users but lacks significant scale, noted TechCrunch.
Finally, Meta is working on the just-launched Vanguard smart glasses – which “feel more like an extension of Meta’s Reality Labs work than a real attempt to harness the power of” large language models, reported TechCrunch.
Meta’s Growing Debt Pile
There is also concern about Meta borrowing money to pay for its AI capital expenditures. Last month, the company announced a $27 billion private-debt deal to “finance the construction of a massive new Louisiana data center, called Hyperion,” reported the Journal. Meta – which partnered with private-credit firm Blue Owl Capital – owns a 20% stake in this project.
This deal is ringing alarm bells for investors who remember subprime real estate deals – the collapse of which contributed mightily to the 2008 financial crisis.
Private-equity firms such as Blue Owl put up or raise the money to build a data center, which a tech company will repay through rent. Data-center leases from “Meta can then be repackaged into a financial instrument that people can buy and sell—a bond, in essence,” investor and a financial consultant Paul Kedrosky told the Atlantic.
Data center leases – which represent an $800 billion market for private equity firms through 2028 – can be combined into a security and sorted into tranches based on their risk of default, noted the Atlantic, as were subprime mortgages in the years before the financial crisis.
While data centers are not houses, the former have different sources of risk. Data centers deteriorate rapidly. The chips inside inside them become obsolete within a year or two as Nvidia and rivals release more powerful models.
Meanwhile, new generations of AI chatbots are not improving as significantly as previous generations did. This failure to advance suggests spending more on superintelligence is becoming “more tenuous by the day,” added the Atlantic.
Nevertheless, investors are optimistic about Meta. Some 42 Wall Street analysts set an average price target of $847 – implying more than 30% upside from the recent price, reported TipRanks.
