The US earnings season was suddenly hit with negative news.
Shares of US tech giant Meta plunged in pre-market trading on Thursday, falling more than 9% at one point, due to disappointing earnings. Its latest financial report showed that net profit in the third quarter plummeted 83% year-on-year, primarily due to a one-time non-cash tax expense of $15.93 billion resulting from the US tax reform bill.
Meanwhile, investors are increasingly concerned about whether the AI infrastructure arms race initiated by US tech giants will yield returns. According to the latest financial reports, Meta, Google's parent company Alphabet, and Microsoft... Microsoft spent approximately $78 billion on capital expenditures last quarter, a surge of 89% year-over-year. Its stock price also fell in pre-market trading in the US, dropping by more than 3.5% at one point.
Super giant plunges
On October 30, Meta's stock price plummeted in pre-market trading in the US, dropping by more than 9% at one point.
Meta's latest financial report shows that the company achieved revenue of $51.24 billion in the third quarter, a year-on-year increase of 26%, but net profit plummeted by 83% year-on-year to $2.71 billion, with earnings per share of $1.05, far below the market expectation of $6.68.
The main reason for the company’s sharp decline in net profit was the $15.93 billion one-time non-cash tax expense resulting from the “Big and Beautiful” tax reform bill in the United States.
Meta Inc. stated that the implementation of the "Bigger & Better" Act resulted in a one-time non-cash income tax expense of $15.93 billion. In fact, excluding the tax impact, Meta's adjusted earnings per share were $7.25, higher than market analysts' expectations of $6.69.
Meta CEO Mark Zuckerberg said he expects the "Bigger & Better" bill to significantly reduce the company's U.S. federal cash tax payments for the remainder of 2025 and into the years to come.
Meanwhile, Meta Inc. will continue to increase its capital expenditures, further raising its full-year spending forecast and hinting at further increases next year. This has raised concerns among investors about whether the company can maintain its net profit growth.
Following the upward revision, Meta expects its full-year spending to be between $116 billion and $118 billion, up from the previous estimate of $114 billion to $118 billion.
Zuckerberg stated that Meta's artificial intelligence The project has consistently required more computing power, leading to increased workloads in the relevant data centers. Increased spending on cloud services suggests that larger investments are likely to be needed before profitability is achieved in the near future.
Meta's CFO, Susan Li, also stated explicitly: "Capital expenditure growth in 2026 will significantly exceed that in 2025."
Meta also emphasized that potential EU requirements to adjust advertising products could have a significant negative impact on its European revenue. Furthermore, several juvenile-related lawsuits in the US, scheduled to go to trial in 2026, could also result in "significant losses."
Analysts believe that, given that Europe is a crucial market for Meta, if this risk materializes, it will directly impact growth expectations.
The financial report shows that Meta's core advertising business continues to perform well, with ad impressions increasing by 14% and average cost per ad rising by 10% in the third quarter, both of which contributed to the healthy growth of advertising revenue.
However, Meta's total costs and expenses reached $30.7 billion in the third quarter, a surge of 32% year-on-year, which was significantly faster than the revenue growth rate of 26%, resulting in the operating profit margin narrowing from 43% to 40%.
Meta Inc. provided fourth-quarter revenue guidance of $56 billion to $59 billion, which was largely in line with expectations. However, given the cost pressures next year, analysts believe the market is more concerned about the company's continued decline in profit margins.
The Crazy AI Arms Race
All signs indicate that tech giants are launching a new arms race in AI infrastructure.
According to the latest financial reports, Meta, Google's parent company Alphabet, and Microsoft spent a total of approximately $78 billion in capital expenditures last quarter, a surge of 89% year-over-year. These funds were primarily used for data center construction, as well as the graphics processing units (GPUs) and other equipment installed within them.
Google's parent company, Alphabet, also announced that it expects capital expenditures in 2025 to be between $91 billion and $93 billion. This not only exceeds the previous guidance of $85 billion, but also marks the second time this year that the company has raised its forecast.
Alphabet CFO Anat Ashkenazi explicitly stated that capital expenditures are expected to "increase significantly" in 2026. Behind these moves is strong demand for Google Cloud, whose backlog grew 46% quarter-over-quarter to $155 billion.
In addition, Microsoft CFO Amy Hood stated that the company's capital expenditures reached a record $34.9 billion in the recently concluded first fiscal quarter (ending in September), far exceeding the market consensus of $30 billion. Hood wrote in a memo, "Demand continues to accelerate, and we are investing to seize future opportunities."
Some analysts point out that tech giants are making a huge gamble, betting on leadership in the AI era.
However, investors are generally concerned about whether tech giants can reap the rewards of their massive investments in AI infrastructure.
During a conference call with Microsoft executives, Bernstein analyst Mark Moerdler asked, "Are you confident that these AI investments will pay off? Or, frankly, are we in a bubble?"
In response, Amy Hood stated that even after investing tens of billions of dollars over the past few quarters, the company is still unable to meet current demand for AI and other services. She said, "I thought we would catch up with the demand, but that's not the case. Demand is still growing, and it's not concentrated in one place, but increasing simultaneously in multiple areas."
(Source: Securities Times)
