Market forecasts Meta's AI spending return on investment will exceed Wall Street expectations.

**Spending Concerns**

Meta now plans to spend $125 billion to $145 billion in capital expenditures for 2026, up from approximately $72 billion last year. Much of this will go toward computing power behind artificial intelligence (AI), raising the same questions among Meta's peers: whether all this capital will pay back returns.

This is a reasonable question. And the clearest path to finding an answer lies in the advertising business itself that's funding these investments.

When Meta reported its first-quarter results at the end of April, it raised its 2026 capital expenditure guidance to $125 billion to $145 billion, up from the prior guidance of $115 billion to $135 billion. Compared to the $72 billion the company spent in 2025, this year's plan essentially represents nearly a doubling. The stock price dropped approximately 7% following this announcement.

"Much of this is due to rising component costs, particularly higher memory prices," Meta CEO Mark Zuckerberg explained the increase on the company's first-quarter earnings call. In other words, it's more expensive chips and memory—not significantly larger expansion—that drove this growth.

A deeper concern is the impact of these expenditures on profits. As today's spending converts to depreciation over the coming years, it will weigh on profit margins. Meta's first-quarter operating margin held at 41%, but the largest depreciation burden still lies ahead.

This spending must be added to Reality Labs, an expensive side venture—the division responsible for Meta's virtual reality headsets and AI glasses products, which lost approximately $4 billion this quarter. Furthermore, new cloud computing and infrastructure deals during the period added $107 billion to the company's future contract commitments.

**Investments Are Already Paying Dividends**

But the very investments that have drawn criticism are already lifting two key drivers of Meta's revenue: how often people use its applications, and how much advertisers are willing to pay to reach users.

On engagement, ranking algorithm improvements drove a 10% increase in Instagram Reels usage time in the first quarter, while global total video time on Facebook grew more than 8%—the largest quarterly gain in four years. AI is also recommending fresher content, with same-day content now representing over 30% of recommended Reels across both apps—double the level from a year ago.

All this boost in engagement naturally translates to growth in the advertising business. Meta's ad impressions served increased 19% this quarter, while the average price per ad rose 12%—double the prior quarter's 6% increase.

Meta's newer ad ranking model expanded during the period to cover off-platform conversions, driving higher conversion rates on Facebook and Instagram, while its Value Optimized Suite—a set of AI-powered tools for marketers to optimize campaigns—has seen its annual revenue run rate more than double, reaching over $20 billion.

"We're seeing returns increase from improving user engagement and creating value for advertisers," Zuckerberg stated on Meta's earnings call.

Despite first-quarter capital spending of $19.8 billion, Meta still generated $12.4 billion in free cash flow.

**Stock Valuation Questions**

So how is Meta's stock valued?

Following the selloff, Meta trades at approximately 21 times earnings—a quite reasonable multiple for a business growing revenue 33% and reinvesting at this scale. In fact, the market has already reflected in its pricing expectations that returns on at least some of these investments may prove disappointing.

Admittedly, in hindsight this spending may be aggressive. Meta's Reality Labs division remains an expensive drag, with no clear timeline for returns. But this is not Meta's first time making bold investments in the future. While these investments may be unprecedented in scale, Meta has historically found ways to compound shareholder value over the long term. Meanwhile, the business is operating well right now. If revenue continues to grow rapidly, the payoff from this investment could make today's stock price look quite cheap in retrospect.