Meta Preview: Billions in AI spending, but when will the investments start paying off?

Meta is heading into its third-quarter earnings release at a time when investors are scrutinizing the financial returns of the artificial intelligence boom more closely than ever. Mark Zuckerberg has a strong case for defending his strategy. The advertising business remains a powerful revenue-generating machine, while AI helps improve ad targeting, increase user engagement, and develop new products. At the same time, investment in computing infrastructure is growing so rapidly that it is becoming increasingly difficult to distinguish the long-term opportunity from the costs already weighing on cash flow.

This time, additional attention is focused on Muse, a new AI assistant that is rapidly gaining users and offers Meta a chance to move beyond its traditional business model. Its popularity is an encouraging sign, but it should not yet be equated with financial success. Revenue from the new service, its impact on Meta's app ecosystem, and its monetization potential will likely become much clearer over the coming quarters. For now, the market will primarily be looking for signs that Muse can become more than just a popular product, while also assessing whether Meta's existing business continues to grow fast enough to support Zuckerberg's costly ambitions.

Key Market Expectations

• Third-quarter revenue: Approximately $63.3 billion, representing year-over-year growth of nearly 24%.

• Group operating income: Approximately $16.9 billion.

• Family of Apps: Approximately $62.8 billion in revenue, primarily from advertising across Facebook, Instagram, and the group's other apps.

• Earnings per share (EPS): $6.74.

• Reality Labs: An expected quarterly operating loss of approximately $5.7 billion.

• Capital expenditures: Consensus estimates for full-year 2026 have risen to approximately $139.7 billion, nearly double the 2025 figure.

• Muse: Approximately 10.9 million downloads since its September launch and an estimated 2.5 million daily active users in mid-October. These are early indicators of product adoption, not measures of profitability.

Advertising Remains the Main Growth Driver

Meta's core business remains its greatest strength. With quarterly revenue expected to reach $63.3 billion, virtually all sales are projected to come from the Family of Apps segment. The scale of Facebook and Instagram gives the company access to an enormous user base and substantial advertiser budgets. AI can further improve campaign performance, enhance content recommendations, and increase the value of advertising without requiring Meta to build an entirely new revenue stream.

Source: XTB Research

Advertising is currently where the economic rationale for AI investment is easiest to identify. If algorithms become better at predicting user behavior and improving campaign results, Meta can increase revenue and the efficiency of its existing business. AI does not need to become a standalone product worth tens of billions of dollars overnight to deliver tangible benefits.

The earnings report will show whether this mechanism continues to work effectively. Revenue growth will be important, but so will management's commentary on the next quarter and 2027. At Meta's current scale, sustaining strong growth requires the company to make effective use of its data, users' attention, and advertising budgets.

Muse Opens a New Path, but Revenue Still Lies Ahead

Muse's rapid rise in popularity shows that Meta can leverage its existing ecosystem to introduce new AI products. In the future, the assistant could create an additional channel for engaging with users and businesses while opening up new monetization opportunities. However, it remains unclear how effectively the company will convert initial interest into regular usage and revenue. Downloads are a starting point, not a measure of financial success.

In the coming quarters, user retention, usage frequency, and the monetization model will become increasingly important. Running an AI assistant generates computing costs, so a large user base does not automatically translate into high margins. Meta will need to find a way to generate revenue without undermining the product's appeal. Potential links to advertising and business services are promising, but the path from AI conversations to incremental revenue has yet to be proven.

AI Spending Is Rising Faster Than Confidence in Returns

The biggest financial burden comes from the infrastructure required to execute Zuckerberg's strategy. Consensus estimates for Meta's 2026 capital expenditures have reached approximately $140 billion, nearly double the previous year's level. This represents an enormous commitment of capital to servers, data centers, and the hardware needed to train and run increasingly sophisticated models.

Source: XTB Research

This infrastructure supports not only new products but also advertising systems and content recommendations. Meta must nevertheless convince the market that it is building assets capable of generating benefits for years to come, rather than simply keeping pace with competitors in the technology race.

High capital expenditures can be justified if they help establish a lasting competitive advantage and increase future cash flows. Concerns arise when costs grow faster than revenue and the payoff remains years away. In that scenario, an increasing share of cash is directed toward investment rather than being used to boost free cash flow or returned to shareholders.

That is why updated investment plans will be crucial. Further spending increases could be well received if management presents a convincing outlook for improved productivity and revenue growth. Without such a rationale, a larger budget could intensify concerns about future profitability.

Reality Labs Continues to Weigh on Results

In addition to AI spending, Meta must contend with losses at Reality Labs, the segment developing technologies including virtual and augmented reality. The projected operating loss for the third quarter is approximately $5.7 billion, while the full-year figure could reach $20.7 billion. This is another capital-intensive business whose commercial potential remains difficult to assess based on current results.

Reality Labs and AI are distinct initiatives, but from an investor's perspective, both raise the same question: how effectively is Meta allocating its capital? The company is developing new platforms and technological infrastructure while continuing to support a segment that generates substantial losses. Its strong advertising business gives it the financial capacity to pursue several expensive projects simultaneously, but it does not relieve management of the responsibility to demonstrate progress and present a credible path toward better results.

The Market Will Focus on the Cost of Future Growth

Meta has an advantage that many companies developing AI lack: an enormous user base, an extensive advertising infrastructure, and experience monetizing digital products. This gives it an opportunity to turn new technologies into products that can operate at massive scale. However, it does not guarantee that spending will translate into a proportional increase in shareholder value.

The third-quarter results will primarily reveal whether Meta's advertising core is maintaining its momentum and how management views the outlook for the coming quarters. Muse will remain an important part of the story, although its financial significance will be easier to assess only when more data becomes available.

Ultimately, the success of Zuckerberg's strategy will not be determined by how much Meta spends on AI or how quickly its new products gain popularity. What matters is how much additional profit and cash those investments generate. With annual capital expenditures approaching $140 billion, revenue growth alone is no longer enough. Meta must demonstrate that it can develop AI faster than the cost of the technology increases, while maintaining the high profitability of its core business.

If these investments fail to translate into meaningful growth in earnings and free cash flow, even impressive sales figures may prove insufficient to convince investors.

Source: XTB Research