Meta Platforms delivered a third-quarter earnings report that beat its own expectations, with sales climbing 26% to $64.6 billion. That was a slight slowdown from the previous quarter's 28% growth, but it still came in ahead of what Wall Street and the company itself had predicted. Investors responded positively, sending shares higher in after-hours trading.
The company now expects fourth-quarter sales of $73 billion to $76 billion, also ahead of analyst forecasts. The numbers suggest that Meta's heavy investment in artificial intelligence is starting to show up in its core advertising business.
Ads are getting more valuable
Advertising remains Meta's engine, accounting for the vast majority of its revenue. This quarter, the number of ads Meta showed grew more slowly than in previous periods, but the company charged 14% more for each ad than it did a year ago. That's a key clue: Meta's AI tools are helping advertisers target their audiences more effectively, making each ad slot worth more.
For everyday investors, this is the clearest sign yet that Meta's AI spending isn't just a cost—it's helping the company sell its core product better. Higher ad prices mean Meta can grow revenue even without showing users more ads, which also helps keep the user experience less cluttered.
The AI spending question
Investors have been worried about the scale of Meta's AI investments, which run into the tens of billions of dollars. The company nudged up the bottom of its full-year capital expenditure range to $135 billion, a sign that it's not pulling back. Yet shares still rose, suggesting the market is becoming more comfortable that the spending will pay off.
Meta's approach to AI monetization differs from its big tech peers. Microsoft, Amazon, and Alphabet—the so-called hyperscalers—invest in building AI computing power and then rent it out through their cloud platforms, generating visible revenue. Meta's AI investment mostly improves its ads, which is harder to isolate. Higher ad prices give investors something to point to, even if they don't prove the AI spend will eventually justify itself.
This distinction matters for investors comparing the big tech names. While strong earnings have lifted global stocks, the market is still trying to figure out which companies will see the clearest returns from AI.
Muse: a new revenue playbook?
Beyond ads, Meta is building out its AI assistant, Muse. The company already charges for heavier use through subscriptions, and it plans to eventually take a fee on purchases Muse makes on users' behalf. That could become a substantial revenue stream, especially given Meta's massive audience of 3.6 billion daily users across its apps.
Muse could also feed back into the ad business. What it learns about users' preferences and behaviors could help Meta target ads even more precisely, potentially pushing ad prices higher still.
But there's a catch: Amazon has already blocked Muse from browsing and buying on its platform. That's a significant hurdle, since Amazon is the world's largest e-commerce site and a natural place for an AI shopping assistant to operate. If other major retailers follow suit, it could limit Muse's usefulness and slow its adoption.
What it means for investors
For everyday investors, Meta's report is a reminder that AI's impact on company finances can be subtle. Unlike a cloud provider that can point to a specific AI revenue line, Meta's payoff is embedded in ad pricing. The 14% price increase is encouraging, but it's not proof that every dollar of AI spending is earning its keep.
Investors should also watch how the Muse rollout progresses. If it gains traction and starts generating fees, it could diversify Meta's revenue beyond advertising, which would be a positive for the stock's long-term story. But the Amazon block shows that even the biggest tech companies face obstacles when they try to expand into new areas.
Meta's shares have been volatile as investors weigh its AI ambitions against its core business strength. This quarter's results suggest the ad business is healthy enough to fund those ambitions for now. The question is whether that will continue as spending ramps up.
As investors had been buying protection ahead of Big Tech earnings, Meta's beat is a welcome sign for the sector. But with even strong earnings sometimes failing to shift Wall Street's view, the market's reaction can be unpredictable.
For now, Meta's story is one of a company that's found a way to make its AI investments work for its core business. Whether that's enough to justify the spending remains an open question—but this quarter, at least, the numbers are moving in the right direction.
