🕶️Meta: Fueling Growth with Strategic Spending

TLDR;

$15.93B one-time new tax charge crushed reported EPS to $1.05 vs. $6.68 expected (-84% miss).
Net income collapsed 83% YoY to $2.71B from $15.69B in Q3 2024.
2025 CapEx raised to $70-$72B (Q3 alone: $19.4B, +111% YoY).
Forward 2026 P/E of ~21-22x for 26% revenue growth rate = Cheap.
Heavy AI investment (long-term pro/ short-term con).
Meta’s internal compute is maxed out—spending to meet actual demand, not speculation.
Winner-Takes-All AI Race – Must front-run opportunity to prevent playing catch-up.
Meta is great but the anchoring bias is something to consider.
Current stock price: $648.35 (1 Nov 2025)
Buy ✅ Rating: Recommended for accumulation, with conservative target of $1000/Share (54% upside).

Stock plunged 11% on October 30, 2025 – worst single-day decline in 3 years.
$15.93B one-time tax charge under “One Big Beautiful Bill Act” (CAMT provisions).
Reported EPS: $1.05 vs $6.68-$6.72 expected (-84% miss).
Net income crashed 83% YoY to $2.71B from $15.69B in Q3 2024.

Exploding AI Capital Expenditures

Margin Compression

Operating margin: 40% – down 3 percentage points from 43% in Q3 2024.
Margins declining despite strong revenue growth, raising profitability concerns.

Reality Labs Continuous Losses

Q3 Reality Labs operating loss: $4.4B.
Division has lost over $70 billion since 2020 with no clear profitability path.
Revenue of only $470M vs. $4.4B loss (nearly 10:1 loss-to-revenue ratio).

Predictable, compounding revenues, guided by an experienced, calculated and world-class management team.
Ad revenue accelerated 26% YoY to $51.24B – massive growth tailwind in core business.
Dual revenue drivers firing simultaneously: Ad impressions +14% YoY AND average price per ad +10% YoY.
Daily Active People: 3.54 billion (+8% YoY) – engagement accelerating across Family of Apps ecosystem.

Meta’s internal compute capacity is maxed out – CapEx addresses actual infrastructure constraints, not speculative future demand.
Visible floor unlike Metaverse spending – AI investments directly benefit core ad algorithms, engagement, and recommendations today with measurable impact.
5% more time on Facebook, 10% more on Threads, 30% more on Instagram Video.
Reels reached $50B annual run rate – direct monetization from AI-powered content delivery.
ScaleAI partnership ensures high-quality training data – avoids synthetic data trap that plagues competitors.

$25B bond issuance at favorable rates (~1% above treasury equivalents) – accessing cheap capital with 5-40 year maturity horizons
Only second major debt offering since 2022 – not establishing pattern of excessive leverage or concerning debt cycles

Super intelligence = winner-takes-all market dynamics – Meta cannot afford to play catch-up in foundational AI race.
Social landscape shifting to LLM-based interaction – defensive spending to prevent losing social engagement vertical as users talk to AI.
Front-running opportunity for competitive moat – early AI leadership drives advantages in coding, products, roadmaps, market share.
Free Cash Flow: $10.6B in Q3 alone – core business generates massive cash despite heavy AI spending.