Meta could be the first major tech company this earnings season to foreshadow higher-than-expected AI costs for next year
Meta shares have risen 14% since the company unveiled the artificial-intelligence agent Muse in early September.
A series of successful artificial-intelligence launches has given Meta Platforms fresh momentum heading into its third-quarter earnings report on Wednesday - and a reason to spend more.
After being written off as an AI laggard for much of the past year, Meta (META) shocked investors with the breakout success of its Muse agent and the recent launch of its Muse Wonder models. Shares of Meta have risen 14% since the launch of Muse in early September.
The company is "back on offense with AI," Bank of America analyst Justin Post wrote in a note last week, adding that further details about Muse adoption will be a main area of focus for the earnings call.
Wall Street analysts polled by FactSet expect $63.34 billion of revenue and adjusted earnings of $6.53 for the quarter that ended on Sept. 30. Bank of America has projected a slightly higher number at $63.8 billion and noted that buy-side expectations - or those from investors at large institutions - could be closer to $64 billion.
The path to translate Meta's newfound AI credibility into financial gains isn't entirely clear, though. The success of Muse won't be immediately apparent in this quarter's results, according to analysts. The app features a generous free usage option along with paid subscription tiers, and Meta plans eventually to monetize the agent by taking a cut of sales facilitated by the agent.
For now, investors will be interested in hearing about Muse usage trends, especially whether consumers are willing to open their wallets for the agent. The cost of running Muse per user will also be an area of interest, Post added.
"Agentic commerce will take time, so we expect subscription revenue to be a bigger near-term driver with Muse Wonder and future frontier models to help drive upgrades," Jefferies analyst Brent Thill wrote in a note last week. Thill flagged barriers to adoption of agentic commerce, or the idea that bots could make purchases on behalf of users. Some companies have banned agents from accessing their platforms and behaving in this way.
However, Thill voiced optimism that Meta's latest Muse Wonder models will appeal to both personal and business agents, with significant revenue potential for enterprise use cases. "We see Meta's opportunity to bring Business AI to its [more than] 200 million businesses as large, incremental and still under-monetized," Thill said.
"Given Meta's likely 'scale-then-monetize' approach, we suspect the stock likely continues to trade on Muse downloads, users, engagement and retention in the near term, in addition to new model launches," Deutsche Bank analyst Benjamin Black wrote in a note last week.
But behind the success of Meta's AI offerings is likely an increase in costs to serve these products. As the first "Magnificent Seven" company to report earnings, Meta will set the tone for the other Big Tech companies that are investing heavily in AI.
Last quarter, the company forecast between $130 billion and $145 billion of capital expenditures in 2026, referring to the company's infrastructure spending. Elevated levels of capital expenditures across the AI landscape have been a source of concern among investors who are unsure whether companies can generate returns sufficient to justify the investment.
Given the positive trajectory of Muse, Black expects Meta to hint at even higher spending levels for 2027 on Wednesday's earnings call. Black has forecast total capital expenditures for 2027 that exceed $230 billion.
-Christine Ji
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