Meta's Q3 2025 earnings show a decline in stock due to a $16 billion tax charge and rising AI costs.

This quarter, when Meta was in the news for its profits, the headlines painted a tale of two halves. One side focuses on revenue growth, potential, and platform strength. The other is a full-fledged investment in artificial intelligence that involves Wall Street hedging, tax charges, and soaring costs.

Meta announced Q3 revenues of around $51.24 billion, exceeding estimates by a few percentage points and indicating year-over-year growth of over 26%. That's a solid performance for its main advertising business on platforms like Facebook, Instagram, and Threads. However, the good news becomes more difficult when you look deeper.

Earnings per share (EPS) were lower than projected, at around $6.03 vs. an estimated ~$6.72. Furthermore, Meta incurred a one-time tax charge of roughly $15.9 billion, a non-cash impact due to US deferred tax assets and new laws ("One Big Beautiful Bill Act"). Despite the revenue beat, Meta's share price fell in after-hours trading due to a mix of tax shock, increased expenses, and expectations for higher expenditure.

Meta's leadership has made no secret of their plans to double down on computing, infrastructure, and AI skills. The buzzword "metaverse" was barely mentioned in the last earnings call. Instead, "compute," "capacity," and "novel" were often utilized.

According to Business Insider, senior executives used the word "compute" 22 times throughout the call, while "metaverse" was not mentioned once. Meta expects capital expenditures (capex) of $70 billion-$72 billion this year, with even higher levels in 2026. CEO Mark Zuckerberg told investors that preparing for the next wave of AI discoveries is "the right thing to do," even if it means bearing some of the expenses in the short term.

Their objective is to integrate sharper AI into every aspect of the company, from recommendation engines in social applications to automated marketing to next-generation hardware (smart glasses, VR headsets) through their Reality Labs subsidiary.

The chance for Meta is genuine. Their ad business is still thriving, and they have a significant scale advantage thanks to their daily user base of over 3.5 billion across all applications. There is potential for profit if they can effectively monetize the AI layer, which includes sharper suggestions, improved ad targeting, and new creative tools and gadgets. Given the present drop in price, one investor said that this may be "a gift for long-term investors".

However, there are some legitimate concerns. Profitability is under strain due to the sharp rise in spending; if the AI initiatives don't yield a sufficient return on investment, margin erosion may hurt. Meta is also subject to regulatory examination, including concerns about kid safety, advertising privacy, and competition. And, despite the hoopla, the latest generation of products (such as Meta's Ray-Ban smart glasses) are still in the early stages of development, with no large-scale commercialization.

Meta has shifted gears. The focus has shifted from the previous "metaverse platform" narrative to one of "AI infrastructure first, platform monetisation later." They are making hyperscale investments, such as constructing data centers, purchasing processors, and employing AI experts, all the while maintaining a heritage advertising business that has to endure.

The most important questions for an investor are:

* How quickly can Meta turn infrastructure investments into revenue and profit growth?

* Will the ad industry continue to develop normally while the AI ramp-up takes place behind the scenes?

* Is the market's fear of cost and regulation legitimate (i.e., is there a chance that rewards will be delayed) or exaggerated (i.e., is this slump a buying opportunity)?

If Meta achieves its goals — new device revenue, AI-powered ad solutions, scaling in the cloud or computing business — the recent share price dip may appear to be an opportunity for the patient. However, the high expenditure can put further strain on finances if there are delays or setbacks.

Meta's Q3 2025 report tells a story of two timelines. Right now, the business is good. The majority of the plot, however, focuses on the future—the upcoming years of AI, computing, and gadget monetization. Meta is putting a lot of money on itself, as well as on platforms and intelligence in the future.

The markets will be looking attentively to see if that gamble comes out. For the time being, the share price drop may appear to be either a warning or an opportunity, depending on your time horizon and patience level.