Meta AI spending and Muse adoption dominate focus ahead of quarterly results

Highlights

Meta's capital expenditure is projected to more than double to $41.68 billion in the September quarter, with an expected cash burn of $8.52 billion.
Wall Street expects Meta's third-quarter net income to drop 17% to $15.44 billion, while revenue is forecast to rise 23.8% to $63.42 billion.
Morgan Stanley raises Meta's earnings estimates for 2027 and 2028, citing stronger ad growth and the revenue potential of new AI products despite rising costs.

AI investment and earnings expectations

As reported by Reuters, Meta heads into its quarterly report after rolling out a series of AI products and services for businesses as CEO Mark Zuckerberg pushes to build a new source of revenue beyond advertising and strengthen the company's position against OpenAI and Anthropic.

Positive reception for the Muse assistant, which offers subscriptions, and for Meta's latest AI models has lifted investor confidence in the company's AI strategy. BofA Global Research analysts say recent AI launches have strengthened confidence in the company's execution, while their survey also points to healthy advertising demand in the quarter.

Visible Alpha data shows analysts estimate Meta's capital expenditure more than doubles to $41.68 billion in the September quarter. Higher spending squeezes free cash flow after pressure in the second quarter, and analysts expect the company to report a cash burn of $8.52 billion in the third quarter.

Ad growth supports outlook despite cost pressure

Morgan Stanley analysts raise their earnings estimates for 2027 and 2028 for Meta despite the heavier spending, citing stronger advertising growth and the potential for new AI products to generate additional revenue.

Wall Street expects Meta to report a roughly 17% decline in net income to $15.44 billion, according to LSEG data. Revenue is expected to grow 23.8% to $63.42 billion, slowing from about 28% in the previous quarter amid intense competition from Google and TikTok.

Meta shares are up about 7% this year, lagging the benchmark S&P 500, which has risen roughly 12%. The results are likely to test whether investors remain willing to back the company's costly AI expansion as near-term profitability comes under pressure.

S&P 500 declines tied to worries about AI investment durability and rising borrowing costs were the focus of our earlier analysis, as weakness in technology and semiconductor stocks dragged broader sentiment. We noted the index slipping below key short-term moving averages, with elevated volatility and specific support/resistance levels becoming critical for near-term direction.

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