Meta leans on improved ad business to fuel massive AI spending
Investors have historically been anxious about whether the company’s businesses will benefit meaningfully from its hefty AI investments
[SAN FRANCISCO] Meta Platforms’ better-than-expected sales outlook helped ease Wall Street concerns about plans for unprecedented spending on artificial intelligence (AI) this year.
The social networking giant topped projections for holiday quarter revenue and gave a strong forecast for the current period during its earnings report on Wednesday (Jan 28). Improvements in its online advertising business are making it possible for Meta to spend hundreds of billions of US dollars over the next few years on AI infrastructure.
Meta’s shares jumped more than 11 per cent in extended trading.
Meta projected record spending for 2026, driven by chief executive officer Mark Zuckerberg’s aggressive campaign to amass the infrastructure, computing power and talent that he deems necessary to win a competitive AI race.
Zuckerberg has said that his strategy centres on “front-loading” computing capacity in preparation for reaching the company’s goal of superintelligence, a theoretical milestone at which point AI can meet or outperform humans at many tasks.
To get there, Meta is spending aggressively. The company estimated that full-year capital expenditures will be between US$115 billion and US$135 billion, exceeding the US$110.6 billion average analyst estimate, according to data compiled by Bloomberg. If Meta hits the top-end of that range, it will mean a jump of roughly 87 per cent from 2025, a record year in which cap-ex topped US$72 billion.
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Speaking on a call with investors, Zuckerberg said to look forward to “a major AI acceleration” that’s been brewing within the tech industry for over a year. After an overhaul of Meta’s AI programme in 2025, Zuckerberg said Meta will soon release new models and products, though the Facebook founder’s near-term expectations were uncharacteristically subdued: “I expect our first models will be good, but more importantly, we will show the rapid trajectory that we are on,” he said.
He reiterated during the call that Meta’s upcoming models may not wow at launch, but will improve meaningfully over time.
To finance these expensive projects, Meta is leaning heavily on its advertising business. The owner of Facebook, Instagram and WhatsApp said first-quarter sales will be US$53.5 billion to US$56.5 billion, beating the US$51.3 billion average analyst estimate.
Chief financial officer Susan Li spent much of her time on the call talking about ways that Meta’s AI investments are helping the company better target ads and give users more personalised content recommendations, which keeps them scrolling.
Investors have historically been anxious about whether Meta’s businesses will benefit meaningfully from its hefty AI investments. “Meta’s lack of model capabilities vs. frontier large language models leaves uncertainty around monetisation of its AI investments compared with hyperscale cloud peers,” Bloomberg Intelligence analyst Mandeep Singh said last week.
But those concerns were tamed on Wednesday. The social media giant reported fourth-quarter sales of US$59.9 billion, beating the US$58.4 billion that Wall Street expected on average. It was a sign that while spending is up, the core business supporting those investments is also growing faster than expected.
Investors were less forgiving of Microsoft, which saw shares tumble after unveiling a similarly ambitious 2026 spending outlook on Wednesday.
AI investment
Meta’s AI investment strategy has not always been well-received. Back in October, when Li warned investors that 2026 capital expenditures were expected to be “notably larger” than in 2025, some investors got spooked and shares fell by as much as 14 per cent. The concern remains that Meta’s spending may not lead to a meaningful new business line.
On the call on Wednesday, Zuckerberg was asked on multiple occasions to talk about his vision for an AI business, but kept his answers vague, promising to share more as the year goes on.
That hot-and-cold reaction from Wall Street has not slowed Zuckerberg. The Meta CEO has committed publicly, including at a high-profile White House dinner, to spend US$600 billion in the US by 2028 to support AI technology, infrastructure and workforce expansion.
Li, speaking on the Wednesday earnings call, added that Meta will continue to seek external financing for some of its infrastructure projects.
These investments are in service of long-term objectives, Zuckerberg said. “I think we have the most talent-dense research effort in the industry and some of the early indicators look positive,” he told investors. “But look, I think that this is a long-term effort.”
Despite Meta’s strong quarterly results on Wednesday, Matt Britzman, an analyst at Hargreaves Lansdown, said the “real headline is the relentless ramp” in capital expenditures. “It wouldn’t be surprising to see the share reaction cool as investors absorb those aggressive investment plans,” he said.
Though Meta’s advertising business will help it weather some of the AI uncertainties, a separate unit continued its considerable losses. Reality Labs, Meta’s unit focused on virtual reality and AI-enabled hardware, posted US$955 million in fourth-quarter sales, and an operating loss of more than US$6 billion for the fourth quarter. That brought its total losses to more than US$19 billion for 2025.
Zuckerberg told investors that those losses won’t continue forever. “I expect Reality Labs losses this year to be similar to last year, and this will likely be the peak as we start to gradually reduce our losses going forward,” he said.
Earlier this month, Meta cut about 10 per cent of staff across Reality Labs as part of a move to shift resources away from some of the virtual reality products and into more AI-focused ventures, including AI wearables, like the Ray-Ban Meta glasses. BLOOMBERG
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