Meta Platforms (NASDAQ:META) stock was plummeting some 13% on Thursday, the day after it released mixed third quarter earnings.
Meta beat revenue estimates, posting strong gains for the quarter. But earnings fell well short of the mark, almost entirely due to a massive one-time tax charge of $15.93 billion.
- Revenue: $51.2B, up 26% year-over-year. This topped estimates of $49.4B.
- Provision for income taxes: $18.9B, up 788% year-over-year. This includes the one-time $15.9B tax charge.
- Net income: $2.7B, down 83% year-over-year.
- Earnings: $1.05 per share, down 83% year-over-year. This missed estimates of $6.72 per share.
- Adjusted earnings: $7.25 per share. This is what the EPS would have been without the one-time charge. It would have easily topped estimates of $6.69 per share.
The one-time tax charge was related to implementation of the federal One Big Beautiful Bill Act.
“We expect a significant reduction in our U.S. federal cash tax payments for the remainder of 2025 and future years due to the implementation of the One Big Beautiful Bill Act. However, the implementation also led to the recognition of a valuation allowance against our U.S. federal deferred tax assets, reflecting the impact of the U.S. Corporate Alternative Minimum Tax. As a result, the third quarter 2025 provision for income taxes includes a one-time, non-cash income tax charge of $15.93 billion,” Meta officials explained in the release.
Too much AI spending?
The massive earnings miss was due to a one-time charge that shouldn’t have an impact in the future. But what else caused the stock to tank?
Similar to why Microsoft stock was down, investors were jittery about too much AI spending by Meta. But, unlike with Microsoft, investors may have a better cause for concern about Meta.
Meta raised its capital expenditures range for fiscal 2025 to $70B to $72B, up from the previous range of $66B to $72B. They also raised their outlook for overall expenses to $116B to $118B, up from $114B to $118B – which would be up 22% to 24% year-over-year. And Meta CFO Susan Li said capex will be “notably larger” in 2026.
A good chunk of this will go toward the development of AI data centers, through a partnership with Blue Owl Capital. The first will be in Louisiana.
The capex will also be used to invest in Meta’s Superintelligence Labs (MSL), which is its hub for AI research and development.
I will say that the growth in 2026 CapEx relative to 2025 comes from growth in each of the core areas, MSL, CoreAI, as well as non-AI spend. So, all of those areas are growing, but these MSL AI needs are growing the most,” Li said on the earnings call.
Investors are not as convinced that all of this AI spending will deliver enough ROI, given that the Reality Labs business at Meta continues to be unprofitable, losing $4.4 billion last quarter. Reality Labs includes the Metaverse, VR headsets, and the AI glasses.
Buy the dip?
While Meta expects $56B to $59B in revenue in Q4, a significant gain over Q3, lingering concerns about its AI spending on new, unproven, or unprofitable AI ventures drove the selloff.
That said, Meta still has a median price target of $869 per share, which suggests 28% upside. The stock is also fairly cheap, with a P/E ratio of 26.
I still think Meta stock looks like a good value, with strong revenue growth. Meta is dipping its toes in a lot of different AI areas, and some may hit, some may not. But Meta is still the dominant force in its core market. Today’s selloff makes it even more attractive from a valuation standpoint.
