AI Confidence Crisis: Can Meta Balance Spending and Monetisation in the First Major Test?

Wall Street’s confidence in AI faces a major test when Meta reports earnings after Wednesday’s market close, ahead of results from Google, Microsoft and Amazon next week.

Spending, rather than revenue, will determine how investors assess the report. The key questions are whether Meta retains its full-year capital expenditure guidance and whether its AI investments are delivering sustainable revenue growth. Strong earnings from leading technology groups have provided much of the momentum behind the AI-led equity rally in recent years. Yet unease has become widespread, particularly during the election period leading up to next month’s US midterm elections. Concerns that AI-related revenue may disappoint have sharply eroded investor confidence in the companies leading the AI boom over the past week.

For the third quarter, Meta had forecast revenue of $61 billion to $64 billion, an increase of 19% to 25% from the year-earlier figure of $51.2 billion. At the midpoint, the guidance indicates approximately 22% growth, substantially below the second quarter’s 28%. Analysts’ consensus estimates place revenue at approximately $63.3 billion to $63.9 billion, representing a year-on-year increase of 23%–25%.

Investors expect growth to moderate even as Meta’s third-quarter revenue is forecast to surpass $63 billion. As AI investment costs start to weigh, compiled market consensus estimates suggest that the Facebook parent’s operating margin will contract to just below 30%. Adjusted operating profit, meanwhile, is projected to decline to approximately $18.8 billion.
Capital expenditure of $31.1 billion absorbed almost all of Meta’s $31.9 billion in operating cash flow during the second quarter. This left only $784 million in free cash flow, well below the $8.549 billion generated a year earlier. Analyst consensus estimates point to a potentially weaker third quarter, with free cash flow expected to turn negative at −$9.14 billion as quarterly capital expenditure reaches $40.97 billion. Guidance for full-year capital expenditure remains high at $130 billion to $145 billion. After spending approximately $50.9 billion in the first half, Meta would therefore incur $79 billion to $94 billion in capital expenditure during the second half. Debt is financing the shortfall: Meta issued $24.9 billion in long-term debt in the second quarter, taking its outstanding long-term debt to $83.7 billion. The company’s chief financial officer explicitly said that debt would account for a larger share of future infrastructure financing.

Market Insight: Can AI Sustain Meta’s Advertising Efficiency Gains?
To judge whether AI is still improving advertising efficiency, the market will scrutinise ad impression growth and movements in the average price per ad in Meta’s earnings report. September’s launch of the AI agent Muse was a major driver of the recent recovery in the share price, helping Meta rise approximately 27% in September alone. Investors have begun to view the company less as a business consuming cash on AI and more as one monetising it.