Shares of Meta Platforms fell in after-hours trading Wednesday after management raised its expense outlook and took a huge tax bill. LSEG said sales for the three months ended Sept. 30 rose 26% year over year to $51.24 billion, well above the consensus estimate of $48.14 billion. Adjusted earnings per share were $7.25, compared with consensus $6.69, according to LSEG data. The profit figure excludes about $16 billion, or $6.20 per share, in one-time income taxes from President Donald Trump’s One Big Beautiful Bill Act. Conclusion Given the non-recurring nature of the fees and CFO Susan Lee’s reassurances on the post-earnings conference call, we don’t think the 7.5% decline in stock price was due to tax changes. “We continue to expect to realize significant cash tax savings under the new law for the remainder of this year and in future years, and this quarter’s expense reflects the overall expected impact of the transition to the new U.S. tax law,” Lee said. Rather, the pressure on the stock price is almost certainly due to management’s increased expense guidance for the remainder of 2025, with Lee repeating his previous comments that “dollar growth in capital expenditures will be significantly higher in 2026 than in 2025, with that growth primarily driven by infrastructure costs such as higher cloud costs and depreciation.” Total spending growth will also “increase at a significantly faster rate in 2026 than in 2025,” management said in the release. META YTD Mountain Meta Platform YTD We understand that there are capex concerns as the market tries to figure out what the long-term returns will be from these huge artificial intelligence-driven investments. But management is on top of things and has options and the ability to adapt as things unfold. In this regard, CEO Mark Zuckerberg said on a conference call that “the right strategy is to proactively bring capacity building forward, so we can prepare for the most optimistic case. Then, the sooner superintelligence arrives, the sooner we will be ideally positioned for a generational paradigm shift on many big opportunities.” In AI terms, superintelligence is when computers become smarter than humans. Zuckerberg added: “If we take longer to achieve[superintelligence]we’re going to use the extra compute to accelerate our core business. We can continue to be profitable with far more compute than we’ve been able to put into it. And there’s a huge demand for additional compute both internally and externally. And in the worst case scenario, we’ll just be delayed building new infrastructure for a while while what we build grows.” The fact that Meta can profitably leverage even more compute than it already has should ease the minds of some investors regarding the huge outlay. Meta is obviously going to leverage all the infrastructure that it’s building in some way. It’s better to have something but not need it right away than to need it right away and not be able to get it. There’s always a chance that your return on investment (ROI) will materialize more slowly or at a lower rate than you expected, but it should still be positive over time. Why Own Meta Platform? Meta Platform rules the world of targeted advertising with its superior technology, and its strong user engagement makes it the best place to advertise. The company’s scale provides the financial strength and employee talent needed to pursue new growth avenues such as artificial intelligence. Competitors: Alphabet, TikTok, Snap Portfolio Weight: 4.69% Latest Purchase: September 6, 2022 Start: May 29, 2014 With these internal safety nets in place, the team is right to bring forward spending because the potential opportunity is too big to pass up and the stakes are too high. When a technology as important as AI emerges, you can either jump on board and lead the charge, or risk being destroyed by aggressive spenders, which is almost everyone at this point. During the conference call, Zuckerberg further explained the internal benefits of building out more AI infrastructure. “The positives are huge, both for our existing apps and the new products and businesses we are now able to build across Facebook, Instagram and Threads. Our AI recommendation system is delivering higher quality and more relevant content, resulting in a 5% increase in time spent on Facebook and a 10% increase in time spent on Threads in Q3. Video is a particular bright spot, with Instagram Time spent on video is up over 30% over last year.”Apart from a temporary profit hit (which the Street seems to have missed) and spending trends, there wasn’t much to take away from the third quarter report. In fact everything else was great. While revenue for both segments exceeded expectations, operating income for the app family exceeded expectations and Reality Labs’ operating loss was nearly $700 million lower than expected. Sales exceeded expectations in all regions. Engagement represented by Family Daily Active People significantly exceeded expectations, as did average revenue per family member. Free cash flow was slightly short due to increased capital expenditures, but was broadly in line as operating cash flow was strong compared to expectations. We are reasserting our meta price target of $825 per share and discussing whether to upgrade the stock to a Buy rating of 1. Current rating is 2. This means buying on the rebound. It’s important to note that although the stock has fallen since its launch, the stock is up 28% since the beginning of the year as of Wednesday’s close. QUARTER HIGHLIGHTS Instagram reached 3 billion monthly active users, Threads recently surpassed 150 million daily active users, and Zuckerberg said it is “on track to continue to be the leader in its category.” Reel’s annual revenue run rate exceeded $50 billion. “The annual execution rate through[Meta’s]fully end-to-end AI-powered advertising tools exceeded $60 billion,” Zuckerberg said during the conference call. Meta AI has more than 1 billion monthly active users, and the team expects usage to increase as the underlying models improve. The new Meta Ray-Ban and Oakley smart glasses are selling well. Zuckerberg said the new Meta Ray-Ban display glasses “sold out in nearly every store within 48 hours, and demo slots are filled through the end of next month.” Total ad impressions across all services increased 14% year-over-year, and Lee said it was “healthy across all regions, driven by engagement and user growth, particularly in video services.” Average price per ad increased 10% year over year. In terms of returning cash to shareholders, Meta returned $3.2 billion to shareholders through share buybacks and an additional $1.3 billion through dividends. According to LSEG, Guidance Meta now expects fourth-quarter sales to be in the range of $56 billion to $59 billion, which is easily above the consensus estimate of $54.95 billion, even at the low end. As mentioned above, management has raised the lower end of its full-year capital investment outlook. The current target is $70 billion to $72 billion, up from the previous range of $66 billion to $72 billion. The new range is above the consensus estimate of $68.36 billion, according to FactSet. Meta also raised the lower end of its 2025 total cost outlook to $116 billion to $118 billion, from the previous range of $114 billion to $118 billion. That also appears to be higher than the $114.9 billion expected, according to FactSet. (Jim Cramer’s Charitable Trust is a long META. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. 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