When Meta Platforms reported its third-quarter earnings on Wednesday evening, the numbers looked good at first glance, with revenue rising 26% to $51.2 billion, crushing Wall Street's expectations. Daily active users across its family of apps, being Facebook, Instagram, WhatsApp, and Threads, topped 3.5 billion. Yet by Thursday, the stock closed 11% below the previous session, marking its worst single-day performance in three years. What investors saw is a $16 billion one-time tax charge from President Trump's "One Big Beautiful Bill Act" that obliterated quarterly profits and a CEO doubling down on what critics are calling a reckless AI spending spree with no clear payoff in sight.

Meta's reported net income collapsed to just $2.7 billion, or $1.05 per share, as the company's tax rate grew to 87%. CFO Susan Li explained that changes in U.S. tax law forced Meta to write down deferred tax assets it could no longer use, a non-cash hit that evaporated roughly $16 billion in shareholder value overnight. Strip out the charge, and adjusted earnings would have been $7.25 per share, a day and night difference. Not just that, CFO Li delivered the real gut punch: total expenses increased by 32% year-over-year to $30.7 billion, far outpacing revenue growth. The culprits? Insurmountable legal costs, an aggressive hiring binge for AI talent, and infrastructure expenses from data centre setups. Li warned that expense growth would continue "at a significantly faster percentage rate" in 2026, with infrastructure and employee compensation driving the expansion.

But the real alarm bells went off when CEO Mark Zuckerberg outlined his grand vision for "superintelligence" instead of Artificial General Intelligence (AGI), the theoretical model of AI that surpasses human intelligence. Meta raised the lower end of its 2025 capital expenditure guidance by $4 billion, bringing the range to $70-72 billion, and Zuckerberg made it clear this is just the beginning, saying, "I think that it's the right strategy to aggressively front-load building capacity," promising that 2026 capex would be "notably larger" as Meta races to outbuild rivals like Microsoft and Google. The company is burning cash on Nvidia chips, new cloud partnerships, and a June-launched "Superintelligence Labs" unit stuffed with top AI talent. Yet when pressed on returns, Zuckerberg offered only vague assurances that AI tools are improving ad targeting and monetisation, though AI use cases have grown past marketing. It is unclear whether this ultimate bet will pay off, but Zuckerberg's reputation for crushing competitors with superior distribution remains solid.

Sources: CNBC, Reuters
Photos: Unsplash