Why I'm Rethinking My Bullish Stance on Meta Platforms Stock

Core Viewpoint - Meta's aggressive capital expenditure plans, particularly in AI and infrastructure, may reshape its earnings profile unfavorably for investors despite strong revenue growth [1][2][3]. Financial Performance - Meta's third-quarter revenue grew by 26% year over year, driven by increased ad impressions and prices, while operating income also saw double-digit growth [2][6]. - The company reported capital expenditures of $39.2 billion for 2024, which was 7% of total revenue of $164.5 billion, up 22% year over year [4]. - In the third quarter of 2025, capital expenditures reached $19.4 billion, with free cash flow declining to $10.6 billion from $15.5 billion a year earlier [6]. Capital Expenditure Outlook - Management has raised its 2025 capital expenditures forecast to a range of $60 billion to $65 billion, later adjusting it to $66 billion to $72 billion, indicating an approximate 80% increase compared to 2024 [5][6]. - For 2026, capital expenditures could reach around $110 billion, nearly triple the 2024 level, as management anticipates significant growth in infrastructure costs [9][11]. Earnings and Valuation Implications - The shift towards a capital-intensive model may slow earnings growth as depreciation and amortization costs rise, impacting the company's operating margin, which was 42% for 2024 [10][11]. - Despite strong advertising revenue growth, the heavy capital expenditures and associated depreciation may challenge the current valuation, which assumes sustained robust profit growth [12][13].