Meta Platforms reports third-quarter earnings on Wednesday with Wall Street facing a test of whether the artificial intelligence boom is producing enough cash to justify its enormous investment bill.
Analysts expect $63.42 billion in revenue, up nearly 24% annually, but also forecast $41.68 billion in capital expenditure and an $8.52 billion free cash outflow.
The danger for investors is that Meta could exceed sales expectations yet still disappoint if Mark Zuckerberg signals another sharp increase in spending.
Such an outcome would challenge the assumption that rapid AI adoption automatically deserves higher technology-stock valuations.
Meta earnings today: Strong sales may conceal weakening cash returns
Meta’s advertising franchise remains formidable. AI recommendations are helping advertisers reach users more effectively, while Facebook and Instagram continue attracting marketing budgets.
BofA Global Research analysts said recent AI launches had strengthened their confidence in Meta’s execution, according to Reuters on Tuesday. Their survey also indicated healthy advertising demand.
LSEG expects net income of $15.44 billion, about 17% below the year-earlier figure excluding a one-off tax charge. On a reported basis, profit would rise sharply from last year’s $2.71 billion.
More revealing is the cash-flow swing. Meta produced just $784 million in free cash flow in the June quarter despite reporting nearly $16 billion in net income. Analysts now expect an $8.52 billion outflow for September.
That is the potential reality check, as accounting profits can look impressive even as infrastructure investment absorbs cash that might otherwise fund buybacks, dividends or further expansion.
The $200 billion question could reset valuations
Meta already projects $130 billion to $145 billion in capital expenditure for 2026, including finance-lease principal payments.
Rosenblatt Securities analyst Barton Crockett remains bullish, maintaining a Buy rating and $886 target. Yet he considers spending approaching $200 billion in 2027 plausible.
That upper scenario would be at least 38% above the top of Meta’s current annual guidance, though it is an analyst projection rather than company guidance.
Higher investment could boost the advertising engine and establish new AI businesses. But the financial market is now asking when those additional billions will earn an adequate return, particularly as computing hardware depreciates and new products compete for customers.
A larger spending forecast without evidence of rising returns could force analysts to lower cash-flow projections and investors to pay less for each dollar of expected future earnings.
It could also unsettle Nvidia and other suppliers if investors conclude the sector’s spending surge is becoming financially difficult to sustain.
Muse will decide how much optimism survives
Meta’s new Muse assistant has attracted more than nine million US downloads and roughly 2.3 million daily active users.
Those figures demonstrate interest, not profitability. Free usage costs money to serve, and subscriptions or enterprise sales may take time to scale.
BMO analyst Brian Pitz, quoted by TipRanks on Wednesday, said he wanted “clear monetization flowthrough and visibility into 2027E cost trajectory”. He reiterated a Hold rating and $580 target, reflecting a more cautious stance than Rosenblatt.
The market is positioned for a consequential surprise. Options imply a roughly 6.3% move in Meta shares by week’s end.
Investopedia counted 18 Buy recommendations among 19 analysts, illustrating how vulnerable bullish expectations could become to sharply disappointing guidance.
Clear evidence that Muse can earn revenue, alongside stable spending guidance, could support the bullish case.
But weak monetisation combined with another capital expenditure increase would show that even an advertising powerhouse cannot escape the economics of AI infrastructure.
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