Meta Earnings Preview: Can AI Growth Restore Confidence After the Nasdaq Sell-Off?

Key Takeaways

• Meta will report third-quarter earnings after the US market closes on Wednesday, October 21, with analysts expecting revenue of approximately $63.3 billion.
• Investors will assess whether AI is strengthening Meta’s advertising business quickly enough to offset rising infrastructure, research and development costs.
• Early demand for Meta’s Muse AI agent has strengthened the company’s growth narrative, but monetization and user retention remain uncertain.
• Meta’s capital expenditure outlook may determine whether its results calm concerns about the AI investment boom or extend the technology-sector sell-off.

Meta Platforms will face one of its most important earnings tests of the year on Wednesday as investors look for evidence that the company’s escalating artificial intelligence investments are translating into sustainable revenue growth.

The report comes after a sharp reversal in technology stocks. The Nasdaq Composite fell 4.5% last week, while the Philadelphia Semiconductor Index lost more than 11% as investors questioned the profitability and financing of the AI infrastructure boom. Meta shares dropped 3.7% on Friday as the sell-off spread beyond chipmakers to major technology platforms.

Meta’s third-quarter numbers will therefore be judged on more than whether revenue and earnings beat forecasts. Investors want proof that AI is improving advertising returns, increasing engagement and creating new products capable of supporting the company’s rapidly expanding cost base.

Meta Earnings Date and Wall Street Forecasts

Meta will release its third-quarter 2026 results after the closing bell on October 21. Its earnings call will begin at 4:30 p.m. Eastern Time, according to the company’s investor-relations calendar.

Wall Street’s current expectations are summarized below.

The revenue forecast sits near the upper end of Meta’s own guidance of $61 billion to $64 billion. However, the projected increase in earnings per share exaggerates the underlying improvement because the year-earlier quarter included a large one-time tax charge. Excluding that item, Meta earned $7.25 per share in the third quarter of 2025.

Operating performance may receive more attention than headline EPS. Analysts expect adjusted operating income to decline to around $18.8 billion, with the operating margin slipping below 30% as AI-related costs rise.

Advertising Growth Remains Meta’s Financial Engine

Despite the attention surrounding Muse, AI agents and data centers, advertising remains the foundation of Meta’s earnings.

In the second quarter, total revenue rose 28% year over year to $60.8 billion. Advertising impressions across Facebook, Instagram and Meta’s other applications increased 14%, while the average price per advertisement rose 12%. Family daily active people reached 3.60 billion, representing 3% annual growth.

Those figures showed that Meta’s recommendation systems were producing measurable results. AI can improve the advertising business in several ways: selecting more relevant content, predicting which advertisements users are likely to engage with, automating campaign creation and helping advertisers optimize budgets.

The third-quarter report should reveal whether those benefits continued as economic uncertainty and higher interest rates placed pressure on advertising budgets.

Investors will focus on:

• Advertising impression growth
• Average price per advertisement
• Conversion rates and advertiser returns
• Engagement on Instagram Reels and Facebook
• Adoption of Meta’s automated advertising tools

Revenue growth close to 24% would indicate that Meta continues to gain advertising demand despite the difficult macroeconomic environment. A material slowdown, however, could weaken the argument that higher AI spending is already strengthening the core business.

Muse Gives Meta a New AI Growth Story

Meta’s Muse personal AI agent has become the company’s most visible attempt to turn generative AI into a consumer product.

Introduced in September, Muse is designed to perform tasks rather than simply answer questions. It can research information, navigate websites, manage administrative work and complete multi-step actions inside a secure virtual environment.

Meta expanded the platform in October with Muse Wonder and Muse Wonder Full, which the company describes as its most capable models for personal and professional agentic tasks. The models are intended to handle activities such as interpreting leases, analyzing finances and helping users navigate insurance claims.

Early adoption has helped Meta shares outperform during parts of the recent technology rally. Reports indicate that Muse has attracted millions of downloads and more than 2 million daily users, although the figures vary depending on the measurement date and analytics provider.

The central question is whether Meta can convert that initial interest into revenue.

Muse is currently available without a fully established business model. Potential revenue sources include premium subscriptions, enterprise services, developer access and transaction fees when the agent completes purchases or reservations.

Until those products begin producing meaningful sales, Muse remains evidence of consumer interest rather than proof of investment returns. Management commentary about user retention, usage frequency and monetization plans could therefore be more important than download figures alone.

AI Spending Is the Biggest Risk to META Stock

Meta’s AI ambitions are becoming increasingly expensive.

Second-quarter costs and expenses increased 55% to $42.03 billion, while operating income declined 8% to $18.78 billion. The operating margin contracted to 31% from 43% a year earlier.

Capital expenditures reached $31.08 billion during the quarter, leaving free cash flow at only $784 million despite more than $15 billion in net income. Meta subsequently narrowed its 2026 capital expenditure forecast to between $130 billion and $145 billion.

That spending covers data centers, servers, networking equipment and the computing capacity required to train and operate Meta’s AI models.

The investment could eventually support several revenue streams:

• Higher advertising efficiency
• Consumer subscriptions for Muse
• AI services for businesses
• Developer access to Meta models
• Enterprise productivity products
• AI-powered glasses and other devices

However, shareholders are becoming less willing to accept rising expenditure without a visible path to stronger cash flow. Analysts currently expect Meta’s capital spending to increase again in 2027, with some forecasts ranging from approximately $194 billion to $225 billion.

A higher spending outlook accompanied by specific revenue opportunities could be tolerated. Another large increase without evidence of monetization could reinforce concerns that the AI race is becoming an expensive contest with uncertain returns.

Reality Labs Could Add More Pressure

Reality Labs remains another source of substantial losses.

The division lost $4.43 billion in the third quarter of 2025 despite higher sales of Quest devices and AI glasses. Meta has continued investing in smart glasses, virtual reality hardware and immersive computing while simultaneously increasing spending on AI infrastructure.

Investors may accept continuing Reality Labs losses if the advertising business remains strong and Muse establishes a credible new growth opportunity. But simultaneous increases in AI spending and metaverse losses would place additional pressure on operating margins and free cash flow.

Updates on AI glasses could provide a more positive angle. Meta’s wearable devices allow it to integrate cameras, voice assistants and AI services into a consumer product, potentially giving the company a distribution advantage that software-only competitors lack.

Meta Earnings Could Influence the Broader AI Trade

Meta’s results will arrive before Alphabet, Microsoft and Amazon report the following week, making the company an early test of investor tolerance for Big Tech’s infrastructure spending.

The recent Nasdaq sell-off reflects concern that AI investment may be growing faster than the revenue generated by it. Rising bond yields have added pressure by increasing financing costs and reducing the present value of long-term technology profits.

Meta differs from highly leveraged AI infrastructure companies because its advertising operation generates substantial cash. The company ended June with approximately $90.3 billion in cash, cash equivalents and marketable securities, although long-term debt had risen to $83.7 billion.

A strong revenue result, stable guidance and convincing evidence that AI is improving advertising performance could reassure investors that at least some of the industry’s spending is generating near-term returns.

Conversely, weaker margins, cautious advertising guidance or another sharp increase in projected capital expenditures could deepen the market’s skepticism and place additional pressure on AI stocks.

META Stock Could Swing About 6% After Earnings

Options prices suggest traders are preparing for a move of approximately 6% in either direction by the end of earnings week. Based on Meta’s recent share price, that implied range could take the stock toward $754 on a positive reaction or below $660 following a disappointment.

The potential outcomes include:

Analyst sentiment remains positive, with 18 of the 19 analysts tracked by Visible Alpha assigning Meta a buy recommendation. Their average target price is approximately $878, although the recent sell-off demonstrates that investor expectations remain highly sensitive to spending and margin guidance.

Can Meta Restore Confidence After the Nasdaq Sell-Off?

Meta has an opportunity to demonstrate that AI spending can support both existing profits and new consumer products.

Its advertising business is still growing rapidly, while Muse provides a potential route into subscriptions, enterprise software and digital transactions. Those advantages distinguish Meta from AI companies whose valuations depend primarily on future demand.

The challenge is cost discipline. Revenue growth alone may not be enough if operating margins continue contracting and capital expenditures rise faster than cash generation.

For Meta to restore confidence, investors will probably need three things: resilient advertising growth, evidence that Muse users remain engaged and a credible explanation of how today’s infrastructure spending will produce future returns.

If management delivers those signals, the results could help stabilize META stock and the broader AI trade. If the report instead emphasizes higher spending without clearer monetization, Meta may become another source of pressure for a Nasdaq market already questioning the price of the AI boom.

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