Within the midst of an unprecedented AI buildout, Meta is spending greater than most. The corporate is constructing two large knowledge facilities, and reporting indicates there can be as a lot as $600 billion in spending on U.S. infrastructure over the subsequent three years.
These figures won’t elevate eyebrows in Silicon Valley, however they’re beginning to make Wall Road nervous.
The problem got here to a head this week as Meta reported quarterly earnings, which confirmed the corporate’s working bills leaping $7 billion year-over-year and practically $20 billion in capital expense. It was the results of intense spending on AI expertise and infrastructure, which has but to usher in significant income for the corporate. When analysts pressed for more specifics, Mark Zuckerberg made it clear the spending was simply getting began.
“The appropriate factor to do is to attempt to speed up this to make it possible for we’ve got the compute that we want, each for the AI analysis and new issues that we’re doing, and to attempt to get to a unique state on our compute stance on the core enterprise,” Zuckerberg advised analysts on the decision. “Our view is that after we get the brand new fashions that we’re constructing in MSL in there and get like really frontier fashions with novel capabilities that you just don’t have elsewhere, then I feel that that is only a large latent alternative.”
If his aim was to reassure traders, it didn’t work. By the top of the decision, Meta’s share value had plummeted in worth. Two days later, the rout has solely deepened. The Meta’s inventory dropped 12% by the closing bell on Friday, representing greater than $200 billion in misplaced market cap.
It’s harmful to learn an excessive amount of into inventory costs, and in strict monetary phrases, Meta’s quarterly earnings weren’t that dangerous. ($20 billion in quarterly revenue is nothing to complain about.) However this was the primary quarter through which Meta’s aggressive AI spending on each expertise and infrastructure had a visual influence on the corporate’s backside line. Much more alarming was that, except for numerous monumental knowledge facilities and well-compensated AI researchers, it wasn’t clear what the cash really purchased.
Analysts pressed Zuckerberg on why he was spending a lot on AI, and once they might anticipate to see income from the rising spending. However the name got here at an odd spot in Meta’s planning, with no clear finances for projected spending and no obtainable product that might anchor a income forecast. Because of this, Zuckerberg was left with solely normal claims in regards to the promise of AI.
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“There are going to be all types of recent merchandise round totally different content material codecs, and we’re beginning to see that,” he asid through the name. “After which there are the enterprise variations of all these too, like enterprise A … the opposite half is how extra clever fashions are simply going to enhance the core enterprise and enhance the suggestions that we make throughout the Household of Apps and enhance the suggestions in promoting.”
Meta isn’t the one firm spending billions of {dollars} on AI infrastructure, so it’s price teasing out why this similar spending isn’t spooking traders at Google or Nvidia, each of which had an awesome quarter. OpenAI is the largest offender, spending the identical quantity with far much less monetary cushion than Meta.
There actually are issues that we’re making a bubble, and if we’re, Meta’s core enterprise will let it journey issues out higher than most.
However should you ask Sam Altman why he’s spending lots of of billions of {dollars} on compute, he’ll let you know he’s working one of many quickest rising shopper providers in human historical past — and one bringing in $20 billion a yr in income. We are able to argue about how sustainable the expansion fee is (that’s a separate weblog put up), however there actually is a fast-growing product on the backside of all of the OpenAI hype. A quick-growing ARR determine goes an extended technique to reply questions.
Meta doesn’t have a product like that, and it’s not clear the place it’s going to come back from.
The corporate’s strongest AI product is the Meta AI assistant, which Zuckerberg famous on the decision has greater than a billion lively customers. However these numbers are absolutely juiced by the three billion lively customers on Fb and Instagram, and it’s arduous to see the present model of Meta AI as a competitor to ChatGPT. There’s additionally the Vibes video generator, which actually did enhance every day lively customers, however has restricted enterprise influence past that.
Probably the most bold undertaking is the Vanguard smart glasses launched earlier this month. Nevertheless, the glasses really feel extra like an extension of Meta’s Actuality Labs work than an actual try and harness the facility of LLMs.
Put merely, these are promising experiments, not absolutely fashioned merchandise.
It’s telling then that when he was pressed on infrastructure spending, Zuckerberg’s response wasn’t to level to the latest launches, however to concentrate on the subsequent technology.
Zuckerberg harassed, whereas emphasizing the pending influence of the Superintelligence Lab’s new fashions, that he was very enthusiastic about new merchandise.
“It’s not simply Meta AI as an assistant,” he mentioned. “We anticipate to construct novel fashions and novel merchandise, and I’m excited to share extra when we’ve got it.”
However this was an earnings name, not a product launch, so all he might say was that there could be extra to share “within the coming months.”
Because the market response confirmed that reply is sporting skinny.
To be truthful, it’s solely been 4 months since Zuckerberg restructured his firm’s AI workforce, and the brand new Superintelligence workforce hasn’t had time to launch an earthshaking AI product but. However as the corporate spends billions of {dollars} to remain aggressive in AI, there’s nonetheless no clear indication of what function Zuckerberg needs to play within the new trade.
Will Meta AI use the corporate’s detailed retailer of non-public knowledge to develop right into a ChatGPT competitor? Is Vibes step one in a shopper leisure play, constructing off Meta’s focused advert system? Or perhaps Zuckerberg’s references to “enterprise AI” are hints at a extra detailed enterprise play?
Thus far, it’s anybody’s guess. Regardless of the reply, the strain is on Meta to search out it — and shortly.
