While the tech sector as a whole has been on a tear, Meta Platforms (NASDAQ: META) hasn’t followed suit. The leading social media stock is down 21% from its all-time high of $796 last August (as of May 29).
The main reason behind the slump is artificial intelligence (AI) spending. Meta’s last three quarters have followed the same pattern: management raises capital expenditure (capex) guidance, investors get worried, and the share price drops. Most recently, Meta announced plans of $125 billion to $145 billion in capex in 2026, up $10 billion from previous guidance.
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Critics have compared these spending plans to Meta’s big bet on the metaverse, which ended up being a high-profile failure. But there’s a lot that this comparison misses.
AI is moving the needle for Meta
The key difference between Meta’s AI and metaverse spending is that AI generates measurable returns. Meta’s AI-powered recommendation algorithms have helped drive improved engagement metrics and ad revenue. The social media company’s Advantage+ suite of tools allows businesses to optimize and automate campaigns and offers generative AI tools for faster ad creation and a continuous stream of fresh content.
The results: In the first quarter of 2026, ad impressions rose 19%, and the average price per ad rose 12% year over year. Ad revenue jumped 33% to $55 billion, a meaningful increase, especially since ads make up 98% of Meta’s total revenue.
The metaverse, in contrast, was a money pit. It’s part of the company’s Reality Labs division, which lost $19.2 billion in 2025 and $4 billion in Q1 2026.
It’s not an all-or-nothing bet
What often gets lost in the discussion of Meta’s AI ambitions is that it has multiple paths to success. Scaling up ad revenue and selling subscriptions to Meta AI are two of its primary objectives, but it also has the option of selling computing capacity to other AI companies.
Meta is the only one of the four major hyperscalers without a cloud computing business. Alphabet, Amazon, and Microsoft all have profitable cloud service businesses.
This is a possibility CEO Mark Zuckerberg discussed at Meta’s annual shareholders meeting last week. He explained that companies have inquired about buying compute from Meta, and if it ends up overbuilding, that option would be on the table.
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