Meta Shares Plunge Despite Strong Q1 Growth as AI Spending Forecasts Surge

Meta Platforms (META) saw its stock price drop as much as 10% following its first-quarter earnings release, erasing gains despite a robust top-line performance. The sell-off marks a deepening decline from the stock's fall 2025 peak of nearly $796, as investors weighed strong operational growth against rising costs. While the company's operational metrics showed acceleration, the market focused on management's decision to hike capital expenditure forecasts. The increased spending is primarily driven by higher component pricing and the expansion of data centers to support future AI capacity. Meta now projects 2026 capital expenditures to range between $125 billion and $145 billion, up from the previous forecast of $115 billion to $135 billion. Financial performance remained strong across core metrics. Revenue climbed 33% year-over-year to $56.3 billion, with operating margins holding steady at 41%. Daily active users reached 3.56 billion in March, a 4% increase despite regional internet disruptions. Ad impressions grew 19% and the average price per ad rose 12%. Despite the volatility, CFO Susan Li emphasized the flexibility of the infrastructure build-out, noting that spending could be scaled back if returns do not meet expectations. However, the Reality Labs division continues to be a significant financial drag, posting an operating loss of approximately $4 billion for the quarter. Following the price correction, the stock's price-to-earnings ratio has compressed to the low twenties.