Meta’s stock dropped more than 11% by the close on Thursday after the company told investors during its third-quarter earnings report that it plans to increase spending on AI infrastructure for the rest of this year and throughout 2026.
Investors reacted fast, and the stock sold off as soon as the plan was laid out. The move signaled higher costs ahead, and the market did not wait to see how it plays out.
Mark Zuckerberg said the company is building more computing power to meet rising demand for AI tools across Meta’s core business. He said the company has seen this pattern before.
In his words, “we build some amount of infrastructure to what we think is an aggressive assumption, and then we keep on having more demand to be able to use more compute, especially in the core business.”
Mark admitted that the plan could go too far. He said, “I mean, it’s, of course, possible to overshoot that right?” If Meta ends up with extra unused compute, he said the company will “absorb” it and use it in the future.
According to Mark, internal teams and outside partners already request access to Meta’s infrastructure for APIs and compute, so even excess capacity might be used over time.
Wall Street cuts targets
That explanation was not enough to settle the market. The idea of building now and hoping the need catches up later sounded like costs first, benefits later, and the Street is allergic to that. Analysts started moving price targets down almost instantly.
BofA Global Research’s Justin Post cut Meta’s price target from $900 to $810, though he kept a Buy rating. KeyBanc’s Justin Patterson lowered his target from $905 to $875, holding Overweight.
TD Cowen’s John Blackledge brought his target down from $875 to $810, also keeping Buy. Morgan Stanley’s Brian Nowak, Goldman Sachs’ Eric Sheridan, Citi’s Ron Josey, and Cantor Fitzgerald’s Deepak Mathivanan all lowered targets too, while maintaining either Buy or Overweight positions.
Translation: they still think Meta has value long term, but the near-term financial pressure is real.
Not every analyst turned, though. HSBC’s Nicolas Cote-Colisson held his target at $905, and Wedbush’s Scott Devitt also left his target unchanged.
Rising AI costs and Reality Labs losses weigh on the stock
The company did share a bright figure: Meta’s AI-powered advertising tools now have an annual run rate of $60 billion.
So the AI investments are doing something. But that number did not override concerns about spending going up too fast.
The Reality Labs segment added more pressure. Meta reported another $4 billion loss from Reality Labs. That division continues to operate at a loss, and there are no signs of it slowing down.
Forrester’s vice president and research director, Mike Proulx said, “Unfortunately, Meta’s strong revenue and user growth in Q3 is tainted by significantly increased costs across the board.” He added, “True to form, Meta’s Reality Labs continued its streak of losses with no signs of slowing down.”
Meta’s stock is now trailing the S&P 500. Meta shares are up 15% year to date and 14% in the past 12 months. The S&P 500 is up 16% year to date and 18% over the past 12 months. Meta is still growing, but the pace is now behind the broader market.
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