Could This AI Darling Be the First Major Casualty of an AI Bubble?

Core Viewpoint - Meta Platforms is facing significant challenges as it invests heavily in artificial intelligence (AI), with stock prices declining nearly 20% since summer due to concerns over capital expenditures [1][11]. Group 1: Financial Performance - Meta's advertising revenue constituted $138 billion of its total $141 billion revenue in the first nine months of 2025, reflecting a 22% year-over-year growth [4]. - The company generated nearly $38 billion in net income during the same period, with analysts projecting a revenue growth of 21% for this year, decreasing to 18% in 2026 [5]. - Free cash flow for the first three quarters of 2025 was approximately $30 billion, down from $39 billion in the same period the previous year, indicating the financial impact of heavy capex spending [8][9]. Group 2: Capital Expenditures and AI Strategy - Meta plans to spend between $70 billion and $72 billion on capital expenditures in 2025 to enhance its AI capabilities, with expectations that spending will continue into 2026 and beyond [3]. - The company is leveraging its extensive personal data to develop competitive AI models, which is crucial for its growth strategy as it seeks to diversify beyond advertising [3][11]. - Meta's AI competitor, Alphabet, has pledged to spend $91 billion to $93 billion over the same period, highlighting the competitive landscape in AI investments [3]. Group 3: Market Position and Future Outlook - Despite being a part of the "Magnificent Seven," Meta's stock is currently the cheapest among them, with a price-to-earnings (P/E) ratio of 28 [6]. - The company’s future growth is uncertain as it relies heavily on advertising, which still accounts for 98% of its revenue, necessitating a successful AI transformation to maintain double-digit growth [11][12]. - Investors are left to wait for the outcomes of Meta's AI investments, with the potential for significant transformation if successful [12].