First up among Big Tech companies, Meta Platforms reports its third-quarter earnings after the close today at what may be a turning point for the company's artificial-intelligence strategy. But in the process of getting here, the company's mounting expenses are weighing heavily on its profitability.
Wall Street analysts expect earnings per share of $6.54, up from just $1.05 last year. But the third quarter of 2025 saw a large noncash tax charge, and EPS would have been $7.25 if it was excluded, according to Meta. This quarter, Meta told investors to expect a $10 billion charge related to its August multistate legal settlement over child-safety issues on its social-media platforms. This comes after $2.4 billion in legal costs and another $1.2 billion in severance expenses last quarter.
Free cash flow has evaporated, with no expectations that it will return until 2029.
On the top line of Meta's income statement, the picture is much brighter. Analysts expect 24% sales growth to $63 billion, and Meta has beaten analyst revenue projections for 16 quarters in a row. Despite the ad business' maturity, internal deployment of AI for better platform engagement and ad targeting has accelerated the company's revenue growth in the past year.
But expenses are seen as growing more quickly, and operating income is set to decline slightly from last year in Wall Street's eyes. Of particular note are depreciation costs from the company's capital expenditures -- which may stretch up to $145 billion this year -- and research and development spending.
The company also had nearly $700 billion in long term supply and lease commitments at last count.
But all the Capex and research expenses are beginning to pay off by vaulting Meta into one of the leading positions in AI technology. In the second week of September, Meta released what may become the first successful personal AI agent, Muse, and last week it announced new Wonder AI models that rival the best from industry leaders OpenAI and Anthropic.
The Muse agent has over 3 million daily users, according to market research firm Similarweb. This is still less than 0.1% of Meta's overall user base, but growth has been fast. The company has a long way to go to make Muse agent a mass-market product, but that also underscores the scale of the opportunity.
Meta makes almost all its revenue from ads but, at least at first, it is trying to offset the increased Muse expenses with e-commerce revenue. Personal agents can take a conversational command and execute an entire retail transaction, from which Meta takes a small fee. But some shopping sites, like Amazon.com, are blocking Muse.
We can see the costs now, but the payoff won't be immediate. "Scaled behavior change takes time (and a strong product with a consistent, high utility experience)," wrote Brian Nowak of Morgan Stanley in a Sunday note. "So while we are bullish Muse (and agentic), we encourage investors to keep reasonable adoption rates in perspective."
Nowak raised his price target from $775 to $820, and maintained his Overweight rating.
Until Muse adoption accelerates, Meta will remain judged on how well AI is juicing ad revenue growth, and how much the company can tame expenses.
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