Large models and AI glasses, Zuckerberg wants them all! Wall Street, however, questions: Meta's frenzied spending resembles that of the metaverse back in the day

According to the Zhitong Finance APP, as of Thursday's U.S. stock market close, Meta Platforms (META.US), the parent company of Facebook and Instagram, saw its stock price plummet by 11.3%, continuing the significant decline from Wednesday's after-hours trading, with a current market value of approximately $1.68 trillion. Previously, this social media and AI technology giant recorded a one-time expense of nearly $16 billion after implementing U.S. President Donald Trump's OBBBA tax law (the "Big and Beautiful" Act), which significantly impacted its net profit for the third quarter, causing a staggering 83% drop in Q3 net profit from $15.69 billion in the same period last year to $2.71 billion. Despite the ongoing expansion of Meta's digital advertising business revenue driven by the AI wave, CEO Mark Zuckerberg's fervent investments in AI have raised concerns on Wall Street.

While Meta's "AI ambitions" have indeed excited investors—attempting to integrate an AI software and hardware ecosystem in the future to become the strongest leader in the fields of AI large models, agent-based AI applications, and AI smart glasses—Wall Street analysts seem increasingly alarmed by the tech giant's growing capital expenditures. Some seasoned analysts have begun to lower their price target for Meta's stock over the next 12 months, although the targets remain significantly above the current price, the expectations for potential gains have clearly diminished.

For Meta's profits, a relatively positive piece of news is that after experiencing a one-time non-cash tax expense of $15.93 billion, the tech giant expects the new Trump OBBBA tax law to significantly reduce its tax burden in the remaining time of 2025 and in the coming years.

Meta's management also warned that as it will continue to "massively invest" in 2026 to achieve its goal of mastering key AI technologies and supporting an enormous AI training/inference system's computational infrastructure, its overall spending will accelerate growth at a "significantly faster percentage rate" in 2026.

It is understood that during the earnings conference call, Meta's management stated that the capital expenditure increase in 2026 will "significantly exceed" that of 2025. The company's latest guidance for capital expenditures in 2025 is approximately $70 billion to $72 billion (a significant increase from the previously provided $66 billion to $72 billion). These increasingly large capital expenditures are primarily focused on AI computational infrastructure (such as NVIDIA AI GPU computational clusters, key hardware expenditures for data centers, and Meta's self-developed AI ASIC computational components, etc.).

Regarding the total expenditure expectations for 2025, Meta's management further raised the lower limit of its annual total expenditure expectation by $2 billion—while the original total expenditure scale was already very high. After the adjustment, Meta expects its total annual expenditure to be between $116 billion and $118 billion, whereas the previous range was $114 billion to $118 billion.

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AI Large Models and AI Smart Glasses, Zuckerberg Wants Them All

Meta is planning a large-scale new AI data center park and a new generation of massive server rooms based on "AI optimization" (utilizing liquid cooling technology, ultra-high power racks, and a completely new high-performance network infrastructure and storage architecture, etc.), primarily for training/inference workloads related to the development and operation of the Llama series AI large models, as well as substantial AI workloads in advertising/content products.

The "Superintelligence Labs" established by Zuckerberg aims to leverage the increasingly vast AI infrastructure built in recent years to create the world's most powerful series of AI large model products and an AI application software ecosystem based on these cutting-edge large models—Meta AI artificial intelligence ecosystem—in the near future.

According to a recent report released by Bloomberg Intelligence industry research analysts, the total revenue of the generative AI market is expected to grow from approximately $40 billion in 2022 to $1.3 trillion by 2032, indicating a potential 32-fold increase over the decade, with a high growth rate of 43% compounded annually. The Bloomberg research team stated that market expansion will first focus on the strong demand for the infrastructure required to train AI systems, followed by robust demand for end-user devices utilizing AI models, as well as other service types such as advertising and software applications. The application ecosystem targeting B/C users, such as advertising and software applications, is undoubtedly the area where Meta excels the most.

AI smart glasses are another concentrated area of Meta's substantial spending. Meta founder and CEO Mark Zuckerberg is doubling down on the future of "edge AI" beyond smartphones, planning to perfectly integrate advanced AI large models with intelligent wearable devices, and striving to challenge Apple's (AAPL.US) absolute dominance in the broad consumer electronics field, including iPhones and wearable devices, in the "post-smart era."

The new description of the "post-smart era" primarily highlights trends, depicting a scenario where smartphone demand growth continues to slow while the penetration rate of new AI large model-equipped wearable consumer electronics, such as AI smart glasses, continues to surge. The global demand for smartphones is gradually reaching its peak, ushering in a "chaotic era" where various AI large model-equipped smart consumer electronics rise. In Zuckerberg's view, smart glasses with high-definition micro-displays will mark another milestone for Meta's journey toward truly "augmented reality (AR) + AI" smart glasses.

In a market declaration released in August, Zuckerberg elaborated on his concept of "personal superintelligence." This concept includes AI smart glasses capable of "seeing, hearing, and deeply interacting with users around the clock," which could completely replace smartphones as the primary gateway to an AI-based digital world "If personal superintelligence can deeply understand our daily lives, comprehend our goals, and help us achieve those goals, then it will be the most useful tool," Zuckerberg wrote in the declaration.

The American tech giant has long attempted to replace the iPhone ecosystem with Meta's intelligent consumer electronics but has repeatedly failed. Now, he believes Apple is significantly "behind" in the edge AI field, thus increasing investment and offering substantial salaries to attract the world's top AI talent. Meta's AI smart glasses currently need to be used in conjunction with mainstream smartphones on the market, including the Apple iPhone, but future models in Meta's AI smart glasses product line are expected to feature built-in displays and a complete AI super assistant, along with various groundbreaking AI functions based on Meta's exclusive AI large model ecosystem.

Voices of Doubt from Wall Street

Oppenheimer downgraded Meta's investment rating from "Outperform" to "Market Perform" after the third-quarter report, removing its price target expectation, stating that the risk/reward has been "appropriately reflected and priced" following a single-day stock price plunge. This Wall Street investment firm indicated that the substantial investment in Meta's AI superintelligence department has unclear revenue opportunities and actual prospects, reminiscent of the massive spending on the Metaverse in 2021/2022, evoking some unpleasant memories.

Another firm, Bernstein, praised the revenue growth of Meta's advertising business driven by AI execution but noted that after the company warned of significantly increased investment levels, it reminded them of "those days of spending in the Metaverse." The firm stated that the strong volume of digital advertising in the third quarter was the main driver of revenue growth in core business, although the growth in pricing trends was also robust; revenue growth in the paid messaging business remained strong but at a smaller scale. Bernstein maintained a "Buy" rating for Meta but lowered its price target by $30 to $870, implying a potential upside of about 15.7% in Bernstein's view.

Citigroup maintained a "Buy" rating but significantly cut its price target for Meta from $915 to $850 (implying a potential upside of about 13.1%). The firm now expects that due to Meta's increasingly aggressive spending and investment next year, profitability will be further weakened by 2026. Citigroup's analyst team acknowledged that they previously underestimated the scale of Meta's AI investments, which indeed exceeded most investors' expectations.

Truist Securities expressed a constructive positive attitude towards Meta, believing that as long as the company continues to achieve stronger revenue growth and free cash flow expansion in the short term, it "qualifies" to continue large-scale investments. The firm also pointed out that the third-quarter performance reflected a strong increase in Meta's share of the digital advertising business, thanks to significant improvements in advertising recommendations, AI monetization paths, and user growth/engagement through the Meta AI tool The agency maintains a "Buy" rating but lowers the target price by $15 to $875, implying a potential upside of approximately 16.4%.

Piper Sandler described Meta's performance as "impressive" and stated that comments regarding expenses in 2026 created pressure on the stock price, presenting a buying opportunity on dips. The agency expects Meta's operating profit to remain roughly flat next year and mentioned that free cash flow may decline. It remains bullish on substantial investments related to advertising models such as GEM, Lattice, and Andromeda. The agency maintains an "Overweight" rating but lowers the target price by $40 to $840, with a potential upside of 11.8%.

The analyst team at Bank of America indicated that, given the limited prospects for earnings per share growth in 2026 and the year-over-year pressure on free cash flow, they expect significant controversy regarding Meta's stock price outlook. However, they believe the company is in a strong position due to its vast user network and significant opportunities to integrate a compelling series of AI applications, including content creation tools, over the next two years.

The agency stated, "We believe that most of the adverse news regarding expenses is already reflected in the stock price curve, and catalysts from AI series products, including the development of new AI large models and AI content creation tools, could drive higher user and advertiser engagement and revenue scale in 2026." Bank of America maintains a "Buy" rating but lowers the target price by $90 to $810, with an upside of 7.8%.

Analyst Ahan Vashi from Seeking Alpha upgraded Meta's rating to "Buy," stating that the company's third-quarter revenue and core KPI performance were strong, but a one-time tax expense of approximately $16 billion led to a significant decline in earnings per share and triggered a drop in the stock price. Vashi noted that despite a substantial increase in expenses and capital expenditures, Meta's valuation is undeniably attractive, with a five-year compound annual return expectation of about 16%, and both technical and fundamental analyses support a bullish outlook on Meta, with a target range of $850 to $1,075 per share.

Seeking Alpha analyst Kenio Fontes upgraded the company's rating to "Buy" after the third-quarter report, attributing the stock price decline to the market's "overreaction" to the one-time impact of non-recurring tax expenses. Fontes pointed out that Meta's core business remains strong, with total revenue growing 26% year-over-year, advertising business still robust, and revenue related to AI and Reality Labs continuing to expand.

He also emphasized that the stock currently has an expected price-to-earnings ratio of about 23x based on 2026 estimates, making the company the cheapest among the "Magnificent Seven" tech giants, thereby enhancing the margin of safety. Fontes stated that Meta's solid fundamentals and discounted valuation provide an attractive opportunity for the medium to long term