Earnings

Meta’s Revenue Jumps 26 Percent, but A.I. Spending Eats Into Cash Flow

co-produced by AI22. October 2026, 07:52

Mark Zuckerberg, Alexandr Wang (Chief AI Officer of Meta) & Shengjia Zhao (Chief Scientist of Meta Superintelligence Labs). © Meta Platforms

The ad business is booming, but the A.I. bill keeps getting bigger: Meta generated $64.6 billion in revenue in the third quarter, up 26 percent from a year earlier and ahead of analysts’ expectations. At the same time, the Facebook parent poured $34.9 billion into data centers and servers, so much that it ended up with negative free cash flow. Even so, the stock rose more than 4 percent at one point in after-hours trading.

The Numbers at a Glance

According to the company’s quarterly report, the third quarter looked like this:

Revenue: $64.6 billion, up 26 percent. Analysts had expected about $63.3 billion.
Operating income: $13 billion, down 37 percent. The operating margin was cut in half, from 40 to 20 percent.
Net income: $9.9 billion, up 264 percent. The jump, however, reflects a heavy tax charge in the year-earlier quarter.
One-time charge: $9.9 billion for the settlement with U.S. states over addictive platforms. Excluding that charge, operating income would have been $22.9 billion.
Capital expenditures: $34.9 billion, compared with $19.4 billion a year earlier.
Free cash flow: negative $2.1 billion, after positive $10.6 billion a year earlier.
Users: 3.64 billion people used at least one Meta app every day in September, up 3 percent from a year earlier.

Growth is being driven by advertising. Meta showed 10 percent more ads than a year earlier and charged 14 percent more per ad on average. According to management, A.I. is already generating additional ad revenue by improving recommendations and ad delivery.

Up to $145 Billion for A.I.

Meta is keeping its foot on the gas when it comes to investment. For the full year 2026, the company now expects capital expenditures of $135 billion to $145 billion, raising the low end of the range from $130 billion. Chief Financial Officer Susan Li did not yet give a figure for 2027, saying planning was still at an early stage, but said Meta expects to “continue investing aggressively” in both its core business and new A.I. initiatives.

Most of the money is going into computing power for Meta Superintelligence Labs and the A.I. agent Muse, which racked up more than 10 million downloads in 40 days after launching in the United States. According to Mark Zuckerberg, more than 10 million people in the United States and Canada have now set up a Muse agent, and about a quarter of them use it daily. Muse is, however, “very compute-intensive to run,” Mr. Zuckerberg said. He expects its cost efficiency to improve more than tenfold over the next year, and Meta plans to build capacity to serve more than a billion people over the next few years. Shortly before the results, Meta also unveiled Muse Wonder, its first frontier model.

Meta plans to make money from Muse in several ways: The free version is to be funded by commerce fees paid by businesses, alongside subscriptions for more advanced models and additional usage, plus offerings for companies. Mr. Zuckerberg said Meta had hit major milestones toward delivering “personal superintelligence for everyone.”

A High-Stakes Race

Meta is not alone in spending such vast sums. According to Fortune, analysts expect big tech companies to invest about $790 billion in A.I. infrastructure in 2026, up from $404 billion last year, and as much as $1.2 trillion in 2027. Anthropic, for example, has locked in about $450 billion in cloud capacity over the next decade, according to its I.P.O. prospectus.

The downside shows up on the balance sheet. Negative free cash flow means Meta is currently no longer funding its investments entirely from its ongoing business. It did not buy back any shares in the third quarter, compared with $3.3 billion a year earlier. Meta itself acknowledges that some A.I. investments will take longer to pay off than its core business. Then there are the legal liabilities: Just on Wednesday, a court in New Mexico ordered Meta to pay a $25 billion penalty over Cambridge Analytica, which the company plans to appeal.

A New Stock Without Voting Rights

For the fourth quarter, Meta expects revenue of $73 billion to $76 billion. Losses at Reality Labs, its virtual reality and smart glasses unit, which came to $4.1 billion in the third quarter, are expected to narrow to about $15 billion in 2027, from $18 billion to $19 billion this year.

Meta also announced a new class of stock: Starting in January, shareholders are to receive one additional nonvoting Class C share for every existing share, to be listed on Nasdaq. As a result, the price of the existing shares is expected to adjust as in a two-for-one stock split. The move does not change Mr. Zuckerberg’s control over the company.