Meta boosts annual capital spending sharply on superintelligence push

Instagram-owner Meta META.O on Wednesday boosted its capital spending plans for this year by 73% in the pursuit of "superintelligence," an effort to offer deeply personalized artificial intelligence to its large social media user base.

Shareholders backed CEO Mark Zuckerberg's ambitious capital outlay, boosting Meta stock 10% in extended trading, as the company posted a 24% surge in advertising revenue - its mainstay - for the quarter ended December 31. It also forecast first-quarter revenue above Wall Street expectations.

"This is going to be a big year for delivering personal superintelligence, accelerating our business infrastructure for the future and shaping how our company will work going forward," CEO Mark Zuckerberg said on a conference call with analysts.

On Wednesday the company said it expects its capital expenditure for 2026 to be between $115 billion and $135 billion. That was driven largely by infrastructure costs including payments made to third-party cloud providers - such as Alphabet's GoogleGOOGL.O - higher depreciation of its AI data center assets, and higher infrastructure operating expenses.

This compares with expectations of a $109.9 billion capex budget, according to Visible Alpha, and $72.22 billion Meta spent last year.

Meta, a late entrant to the AI race, has doubled down with a target of achieving superintelligence, a theoretical milestone where machines outthink humans. To that end, it has pledged to spend hundreds of billions of dollars to build several massive AI data centers for superintelligence and is planning for bigger financial outlays to meet soaring compute needs.

It has funded the steep AI-related bills with its advertising business, where revenue surged to $58.14 billion in the fourth quarter, up from $46.78 billion a year earlier. Capex rose by 49%, outpacing fourth-quarter total revenue growth of 24%, fueling a 7 percentage point drop in operating margin.

In the past year, Meta launched ads on WhatsApp and Threads, creating direct rivalry with platforms like Elon Musk's X, while Instagram's Reels continues to jostle with TikTok and YouTube Shorts within the lucrative short-video market.

"Meta is an example where the valuation is really not that demanding," said John Belton, a portfolio manager at Gabelli Funds that owns Meta stock. "The returns are enormous today — they’re just not coming on the generative AI side of the business. They’re coming from the core business, which is being helped by AI infrastructure."

MICROSOFT SHARE FALL SHOWS THAT CORE GROWTH MATTERS

To fuel its AI bets, which needs enormous compute power, Meta signed contracts with AlphabetGOOGL.O, CoreWeaveCRWV.O, NebiusNBIS.O last year as it signaled a pressing need for capacity expansion due to internal constraints.

The company will face capacity constraints through much of 2026, its chief financial officer Susan Li said on the call.

Meta's ad platform has remained its growth engine, allowing advertisers to automate and personalize their campaigns and help the company support its investments to achieve superintelligence - a theoretical milestone where machines could surpass human performance.

Jesse Cohen, senior analyst at Investing.com, said long-term investors in the company were likely to view 2026 as a necessary transitional year where Meta’s advertising business continued to generate sufficient cash flow to fund its AI transformation.

Microsoft MSFT.O, the other tech giant that reported on Wednesday, also reported a 66% increase in its capital outlay in the December quarter. But shares of the Windows maker fell 6.5% after hours as it only edged past estimates for quarterly revenue in its crucial cloud-computing business.

Meta, whose shares rose 12.7% last year, trades at 22.2 times the estimates of its earnings for the next 12 months, compared with 29.5 for Alphabet GOOGL.O, 30 for Amazon.com AMZN.O, and 27.1 times for Microsoft, according to LSEG data.

Meta forecast 2026 total expenses to be in the range of $162 billion and $169 billion, up from $117.69 billion a year ago, driven by rising employee compensation as the company spends millions to hire top AI talent. Zuckerberg has paid top dollar for AI big hitters, reorganizing its AI efforts under a "Superintelligence Labs" unit last year, and setting off a talent war in Silicon Valley.

For the first quarter, it expects revenue between $53.5 billion and $56.5 billion, compared with analysts' average estimate of $51.41 billion, according to data compiled by LSEG. The company beat profit and revenue estimates for its quarter ended December 31.

-Jaspreet Singh/Reuters