Will Meta's Q3 2025 earnings justify massive AI infrastructure spending?

When is Meta reporting Q3 earnings?

Meta will release its third quarter results after US market close on Wednesday, 29 October 2025. The earnings call will be held at 1.30 pm Pacific Time.

Q2 2025 performance reflects AI optimism

The Facebook parent exceeded analyst expectations in the second quarter, beating estimates on both revenue and earnings. Operating margins were maintained at a healthy level despite continued investment in artificial intelligence (AI).

The company's Reality Labs segment posted a $4.5 billion loss, smaller than expected. Management highlighted progress on monetising the company's AI technology and revealed investment plans for talent and infrastructure.

Management's Q3 2025 guidance surpassing analyst forecasts also drove investors' optimism. The company projected revenue between $47.5 billion and $50.5 billion, well above analyst consensus of $46.2 billion.

This strong performance demonstrated Meta's ability to balance growth investments with operational efficiency. The results reinforced confidence in the company's AI-driven strategy.

Table 1: Q2 2025 financial metrics

Source: Meta, LSEG

Key metrics to watch

Analysts expect Q3 revenue of $49.4 billion, representing 21.6% year-on-year growth consistent with previous quarters. The estimates sit closer to the upper end of management's guidance range.

Net income is forecast at $17.0 billion, marking 8.5% growth versus the prior year. The deceleration in growth pace is attributable to notable increases in expenses, especially research and development, and general and administrative costs.

This highlights the company's focus on advancing technology through investments in research and talent. Operating margin is expected at 38.7%, down from 42.7% in Q3 2024. Investors will scrutinise whether these investments translate into sustainable revenue growth and improved profitability over time.

Table 2: Financial results expectations

Source: Meta, LSEG as of 22 October 2025

The five AI growth pillars

Monetising AI technology has become a crucial driver of Meta's business. In advertising, AI-powered recommendation models drove 5% more conversions on Instagram and 3% on Facebook. Generative AI features now contribute meaningfully to ad revenue, particularly benefiting smaller advertisers.

Advanced recommendation systems have created more engaging experiences, increasing time spent by 5% on Facebook and by 6% on Instagram in Q2 through better content suggestions and new AI video editing tools.

Meta is integrating business messaging AI agents into ads on Facebook and Instagram and e-commerce sites. CEO Zuckerberg predicts every business will soon have an AI agent.

Meta's generative AI chatbot – Meta AI – has been made available to over 200 countries and reached over 1 billion monthly active users. Content discovery, in particular, can be enhanced through Meta AI as users are able to ask questions about posts they see or even dub foreign content into their local language.

AI devices continue to gain traction, with Ray-Ban Meta glasses sales accelerating and new Oakley Meta models launching. The Quest headset ecosystem is also expanding its user engagement beyond gaming applications.

Figure 1: Meta Ray-Ban Display glasses

WhatsApp ads and smart devices diversify revenue

While advertising continues to dominate the revenue split, contributing 98% to total revenue, Meta has been looking for ways to diversify its sources of income.

Within advertising, the company has introduced ads within feed on Threads and the updates tab of WhatsApp. Users can now see ads from the status or channels of business WhatsApp accounts, a feature that could extend to other messaging functions across Meta's apps if it proves successful.

Other revenue from the Family of Apps (includes Facebook, Instagram, Messenger, WhatsApp, and other services) grew 50% in Q2, driven by WhatsApp paid messaging revenue growth. Meta Verified subscriptions also contributed.

While Reality Labs continues to show losses due to hefty technology development costs, Meta glasses have seen strong commercial traction. Ray-Ban Meta glasses sales more than tripled year-on-year in the first half of 2025, prompting Meta to ramp up production.

At the Meta Connect event in September, the company announced a series of upgrades to its Augmented Reality (AR), AI and smart glasses products. These include new Ray-Ban glasses with a full-colour display and a pairing smart band that controls the smart glasses.

Meta's progress in integrating AI into consumer-friendly wearable devices could provide a competitive edge. The company's combination of its extensive social media user base with AR-enabled hardware represents a unique positioning that competitors may find difficult to replicate.

Figure 2: Revenue (US$ million) breakdown by business segment

Return on investment concerns mount

Meta is investing heavily in infrastructure to expand its superintelligence capabilities. One key initiative includes building massive AI 'titan clusters' data centres.

The first cluster Prometheus in Ohio will go live in 2026 and will house at least one gigawatt of computing power. Hyperion will be the next and will scale up to five gigawatts over the next several years.

These projects have dramatically increased the company's capital expenditure (capex). Year-to-date capex through June 2025 spiked to $30.7 billion, nearly double the spending in the same period in 2024. Full calendar year capex is projected to reach $66 to $72 billion. Free cashflow also declined 12% to $8.5 billion last quarter.

Investors will need evidence that infrastructure spending translates into revenue growth sufficient to justify the significant capital allocation shift and margin compression.

Key risks to consider

Meta's heavy reliance on advertising revenue, which accounts for 98% of total revenue, creates vulnerability to economic downturns and shifts in advertiser spending. Any sustained weakness in the digital advertising market could significantly impact financial performance.

Regulatory challenges remain a persistent concern in both the US and European Union. Potential restrictions on data usage, content moderation requirements, and antitrust investigations could limit the company's operational flexibility and revenue growth.

The timeline for meaningful revenue impact from AI features remains uncertain. While engagement metrics show positive signs, the sustainability and scalability of these gains over the longer term remain to be demonstrated.

Competition in the AI space continues to intensify, with rivals investing heavily in similar capabilities. Meta's ability to maintain its competitive position depends on successful execution of its AI strategy and continued user engagement across its family of apps.

Analyst sentiment remains positive

Wall Street sentiment has remained constructive, with 59 of 68 analysts assigning 'buy' or 'strong buy' ratings according to LSEG data, and one 'sell' recommendation.

Average target price has been revised materially upwards in late July from below $700 to $860 currently. This suggests approximately 17% upside from current levels. However, these targets reflect assumptions about successful AI monetisation that have yet to be fully validated by financial results.

Figure 3: Wall Street analyst estimates

Among the Magnificent Seven, Meta ranks third in terms of year-to-date returns. The company trades at a forward price-to-earnings ratio of 24.72, the second lowest in the group after Alphabet, potentially offering relative value compared to peers.

Table 3: Valuation and performance of the 'Magnificent Seven'

Source: LSEG, as of market close on 21 October 2025

Technical analysis on share price

Meta shares staged a sharp rebound from April's sell-off, rallying as much as 66% before paring gains to current levels. The share price has traded largely sideways since reaching its historical peak in mid-August.

Technical indicators show stabilisation following October's correction. Should earnings provide a positive surprise, the share price may move back above the 50-day moving average (MA) at around $746. A move towards the historic peak at $796 could follow.

Conversely, disappointing results may drive prices towards the 200-day MA at around $674. While near-term chart patterns suggest potential for recovery, the stock remains vulnerable to disappointment given valuation is not exactly cheap.

It is worth noting that the share price gapped up 4% and 11% on the day following positive results in the previous two quarters.

Figure 4: Meta's daily price chart

• _{This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}