META Q3 Deep Dive: Rising AI Investments Drive Revenue, But Profit Misses Mark

Social network operator Meta Platforms (NASDAQ:META) announced better-than-expected revenue in Q3 CY2025, with sales up 26.2% year on year to $51.24 billion. The company expects next quarter’s revenue to be around $57.5 billion, close to analysts’ estimates. Its GAAP profit of $1.05 per share was 84.3% below analysts’ consensus estimates.

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StockStory’s Take

Meta’s third quarter results for 2025 sparked a negative market reaction, driven by an unusually large shortfall in GAAP earnings despite robust revenue growth. Management attributed the strong top-line performance to continued advances in AI-powered ad targeting, increased engagement across its family of apps, and substantial growth in video content consumption. However, higher expenses related to technical hiring, infrastructure expansion, and legal matters weighed heavily on profitability. CFO Susan Li acknowledged, “Year-over-year expense growth accelerated 20 percentage points from Q2 primarily due to legal-related expenses, increased AI talent acquisition, and infrastructure costs.”

Looking ahead, Meta’s guidance is shaped by its strategy to aggressively expand AI compute capacity and launch new AI-driven products across its platforms. Management highlighted the need to frontload infrastructure investments to support both current and future opportunities in superintelligent AI and personalized services. CEO Mark Zuckerberg emphasized the company’s ambition to “build personal superintelligence for everyone” and noted, “We’re heads down developing our next generation of models and products and I’m looking forward to sharing more on that front over the coming months.”

Key Insights from Management’s Remarks

Meta’s latest quarter was defined by the interplay between strong AI-driven ad revenue and substantial increases in costs from scaling infrastructure, hiring, and legal expenses. Management also highlighted growing user engagement, particularly on newer products like Threads and AI-powered features.

• AI-powered ad performance: Management cited improvements in AI-driven ad ranking models as a primary driver of revenue growth, with a unified architecture enabling more efficient and effective ad placements across Facebook and Instagram. The adoption of automated ad solutions such as Advantage+ continues to expand, with CFO Susan Li noting a 14% reduction in lead costs for advertisers using these tools.
• Infrastructure and hiring costs: The quarter saw a marked increase in expenses, with significant investments in data centers, servers, and technical talent—particularly in AI research and development. Management explained that these investments are necessary to support both future AI initiatives and ongoing improvements in the core business.
• Video and content engagement: Engagement with video content, especially on Instagram, rose sharply, contributing to higher ad impressions and pricing power. Zuckerberg highlighted that video time spent on Instagram increased over 30% year-over-year, and Reels achieved a $50 billion annual run rate.
• New product momentum: Threads surpassed 150 million daily active users, while Meta’s AI creation tool, Vibes, showed promising early retention and usage growth. AI-assisted content creation and media generation are emerging as significant engagement drivers across Meta’s apps.
• Legal and regulatory headwinds: Management acknowledged that elevated legal expenses impacted quarterly profit, and flagged increasing regulatory scrutiny in both the EU and U.S. as a material risk for future revenue, especially related to changes in ad personalization requirements and ongoing youth-related trials.

Drivers of Future Performance

Meta’s outlook is centered on scaling AI infrastructure, expanding product features, and navigating rising costs and regulatory uncertainty.

• Aggressive AI infrastructure build: Management plans to increase capital expenditures significantly into next year, aiming to frontload compute capacity for superintelligent AI initiatives. CFO Susan Li described this as essential for supporting both core business improvements and new product launches, but warned that expense growth will outpace 2025 levels.
• Continued AI-driven product innovation: The company expects to advance its recommendation and ad ranking systems with foundational AI models, leveraging larger datasets and compute power to further boost engagement and monetization. Zuckerberg highlighted the rollout of next-generation models and novel product formats as critical levers for growth.
• Regulatory and margin headwinds: Meta anticipates persistent legal and regulatory challenges, particularly in Europe and the U.S., which could negatively affect ad revenues. Additionally, management acknowledged that the rapid expense growth from infrastructure and hiring will pressure operating margins in the near term.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) the pace of AI infrastructure expansion and its impact on core ad business performance, (2) adoption and monetization of new AI-powered products like Vibes and Meta AI enhancements, and (3) regulatory developments in the EU and U.S. that could affect ad targeting and revenue streams. Execution on cost control and progress toward scaling next-generation AI models will also be key signposts for sustained growth.

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