Meta increases AI capital expenditures; the stock price plunges after the earnings report is released

Facebook’s parent company Meta Platforms announced its first-quarter earnings after the U.S. stock market close, with both revenue and profit performing better than market expectations; however, the stock price fell 7% after hours. Meta significantly raised its full-year capital expenditure guidance, sparking concerns in the market about the return on investment for artificial intelligence (AI) infrastructure.

Meta Raises Capital Expenditure, Stock Drops 7% After Hours

Meta raised its full-year capital expenditure estimate to $125 billion to $145 billion, up about 7.4% from its prior forecast. Management said that higher hardware component prices and rising data center construction costs are the main factors. Even though Meta is actively investing to build AI infrastructure, the massive capital needs still raised doubts among the market. Investors worry that if these record-level capital expenditures cannot be quickly converted into tangible profits, it will squeeze the company’s profit margins; this sentiment also directly led to a sharp correction in its after-hours stock price.

Revenue Grows 33% Year Over Year, Active Users Dip on Geo Risk

Meta’s first-quarter revenue reached $56.3 billion, up 33% from the same period last year, while net profit was $26.8 billion, including an $8 billion one-time non-cash income tax benefit related to U.S. tax policy that took effect in July. Adjusted earnings per share (EPS) was $7.31, above the expected $6.79. However, the number of daily active users across the platform edged down to 3.56 billion, the first decline. Meta said that the Iran war and “restrictions on Russia’s access to WhatsApp” were the reasons it was severely hit.

Cost Controls and AI Development Strategy

To balance its heavy AI development spending, Meta implemented cost-control measures, including cutting approximately 8,000 employees and freezing 6,000 job openings. Bloomberg estimates that this will save the company about $3 billion per year. On the product side, Meta launched a new AI model, “Muse Spark,” demonstrating its technology roadmap. However, compared with capital expenditures on the order of hundreds of billions, the cost savings from headcount reductions are minimal. Going forward, the market will focus on whether Meta can effectively use new technologies such as AI agents to genuinely improve operating efficiency and create commercial revenue, thereby proving the value of its investment.

Potential Regulatory Challenges and Litigation Risk

In addition to financial and technical challenges, Meta is facing increasingly stringent regulatory risks. A recent lawsuit involving alleged teen social media addiction resulted in Meta losing, raising concerns in the market about its legal responsibility. Meta acknowledged that regulatory scrutiny around youth safety issues is continuing to increase, and that the U.S. will still hear several high-profile lawsuits this year, which could lead to tangible financial losses. These lawsuits not only bring potential pressure from potentially large compensation awards, but may also force the company to change its existing algorithms and operating models, adding uncertainty to the stability of its long-term business.

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