Meta warns of ‘significant acceleration’ in AI-related costs after strong third quarter

Facebook owner Meta Platforms beat analysts’ estimates for third-quarter revenue and profit on Wednesday, but warned of “significant acceleration” in infrastructure spending related to its artificial intelligence build, sending signals of mixed on whether higher digital ad sales from its social media flagship will continue to cover its massive AI investment.

Shares of the Menlo Park, California-based firm fell 2.5% in after-hours trading.

The world’s largest social media company, led by CEO Mark Zuckerberg, reported third-quarter earnings of $6.03 per share, compared with estimates of $5.25 per share, according to data compiled by LSEG.

Third-quarter revenue rose 19% to $40.59 billion, compared with analysts’ estimates of $40.29 billion.

The company also forecast fourth-quarter revenue of between $45 billion and $48 billion, compared with analysts’ estimates of $46.31 billion, according to data from LSEG.

According to analysts, advertising accounts for the vast majority of Meta’s revenue, meaning higher marketing spending during the holiday season could provide a crucial boost to the company’s bottom line.

Meta’s earnings follow encouraging results from digital ad companies Alphabet and Snap, both of which beat third-quarter revenue estimates on Tuesday thanks in part to growth in AI-assisted ad sales.

Like its Big Tech peers, it has invested heavily in data centers to capitalize on the generative AI boom. Unlike cloud service providers, however, it does not expect to monetize these investments immediately and is therefore subject to more scrutiny from investors about its spending.

The company kept costs under control in the third quarter, with total costs of $23.2 billion and capital expenditures of $9.2 billion. He projected a slightly improved spending picture for the year as well, narrowing the total spending forecast to $96 billion to $98 billion.

In its press release, however, it warned of “a significant acceleration in infrastructure spending growth next year as we recognize higher growth in depreciation and operating expenses of our expanding infrastructure fleet.”