Meta Beats on Revenue and EPS, but a $9.9B Legal Charge and Heavier AI Capex Spook Investors
Meta Platforms topped Wall Street’s Q3 estimates on both the top and bottom lines, yet shares gave back an initial after-hours pop as investors zeroed in on a nearly $10 billion legal charge and a steeper 2026-2027 AI spending trajectory.
What Happened
Meta Platforms (META) delivered a clean top-and-bottom-line beat for the third quarter of 2026, with revenue climbing 26% year over year to $64.6 billion against a Street consensus of $63.34 billion, and adjusted EPS of $3.83 topping the $3.57 analysts had modeled. The headline number was clouded, however, by a $9.9 billion legal charge tied to the August 2026 multi-state attorneys general settlement — excluding that one-time hit, operating income would have risen roughly 11% year over year. The charge also pushed Meta’s effective tax rate to 24% for the quarter, above the company’s own outlook, since a portion of the legal expense was non-deductible; management guided the fourth-quarter tax rate back down to a 15%-17% range.
Shares initially rose about 3.8% in after-hours trading, from a regular-session close of $697.43 to roughly $723.93, as investors looked past the legal charge toward the underlying growth. That reaction didn’t hold through the following sessions: Meta’s stock retreated alongside a broader tech selloff later in the week — the Nasdaq posted its worst single-day drop since June on October 24 amid rising AI-spending anxiety across the sector — and commentary from Meta’s own call about a “notably larger” capital-expenditure trajectory into 2027 added to the unease. Meta guided fourth-quarter revenue to a range of $73 billion to $76 billion, which would extend the current growth streak if hit.
Analyst Reaction
Wall Street’s response was mixed-to-cautious rather than uniformly bullish. Wells Fargo kept its Overweight rating but trimmed its price target slightly to $995 from $1,000, a move that reflects comfort with the underlying business even as the firm tempers near-term upside given the spending outlook. TD Cowen, which also rates the stock a Buy, cut its target to $850 from $865 in a note following the report. Neither firm abandoned its bullish stance, but the modest reductions from both suggest the Street is recalibrating valuation assumptions around Meta’s heavier AI infrastructure build-out rather than questioning the durability of its ad-revenue growth, which remains the primary profit engine funding that spending.
Why It Matters
Meta’s quarter is the clearest illustration yet of the tension running through this earnings season’s Big Tech reports: durable, accelerating revenue growth funding an AI infrastructure arms race that’s making investors increasingly nervous about returns on that spending. The same dynamic is now in focus for Microsoft and Alphabet, both reporting Wednesday, and for Amazon on Thursday — all three carry similar capex trajectories into 2027. Meta’s results also arrive the same week Tesla reported its own earnings, with margin pressure as the shared theme across otherwise very different businesses. For ongoing coverage of the week’s earnings and the broader AI-spending debate, see FactSheets’ Earnings coverage and the Meta Platforms stock fact sheet.
For informational purposes only. Not investment advice. Figures are based on company disclosures and third-party analyst estimates current as of publication and may be revised.
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