Meta shares tumble as AI spending surge alarms investors

Shares in Meta Platforms fell sharply in extended trading on Wednesday after the tech giant raised its annual capital spending forecast by billions of dollars.

The parent company of Facebook, Instagram and WhatsApp said its 2026 capital expenditure will be between $125 billion and $145 billion, up from a previous forecast of $115 billion to $135 billion. The increase, largely aimed at AI processors and data centres, unsettled investors, sending the stock down more than 6 per cent in after-hours trading.

Legal headwinds and youth safety concerns

The market reaction was also driven by a cautious legal outlook. Meta warned that ongoing regulatory pressure in both the European Union and the U.S. "could significantly impact our business and financial results," amid continued criticism over children’s safety and mental health on its platforms.

"We continue to see scrutiny on youth-related issues and have additional trials scheduled for this year in the US, which may ultimately result in a material loss," the company said in its financial disclosures.

Meta is facing increasing legislation aimed at restricting teen access to social media worldwide. It is also dealing with thousands of active legal cases brought by individuals, municipalities, states and school districts. These cases allege the company designed addictive algorithms that harm children.

Several key cases are due in the coming months, including the second phase of a major trial in New Mexico and a case in California expected to test legal arguments central to nearly 2,000 similar lawsuits filed by school districts across the U.S.

Adding to concerns, Meta reported its first quarterly decline in Daily Active People (DAP) since introducing the metric across its apps. The company attributed the drop to internet disruptions in Iran and new restrictions on WhatsApp in Russia.

Despite this, daily active users rose 4 per cent year-on-year to 3.56 billion in the first quarter. Matt Britzman, an equity analyst at Hargreaves Lansdown, said the market reaction to increased spending may be overdone, noting that higher forecasts reflect rising hardware costs rather than a major shift in strategy.

Zuckerberg’s AI pivot and job cuts

The results come weeks after Reuters reported Meta’s plans for significant layoffs as part of a broader AI-driven restructuring. Chief executive Mark Zuckerberg is pushing to integrate AI across the business, reshaping its workforce.

Sources indicate further job cuts are planned for the second half of the year.

Reuters also reported that Meta is installing tracking software on computers used by its U.S.-based employees. The software captures mouse movements, clicks and keystrokes to help train AI models.

During a conference call, chief financial officer Susan Li confirmed that the next phase of job cuts will begin in May.

"We don't really know what the optimal size of a company will be in the future," Li told analysts. "I think there's a lot of change right now, with AI capabilities advancing rapidly."

Zuckerberg defended the strategy, saying small AI-supported teams can now produce work that previously required much larger groups. He said the company aims to build "the next evolution of our company around these people," focusing on infrastructure investment, higher rewards for top performers and leaner teams.

Meta said its global workforce stood at 77,986 at the end of March, slightly up from a year earlier but down from 78,865 in December. The company maintained its forecast for 2026 operating expenses, despite higher capital spending, citing expected savings from job cuts.

• China orders Meta to unwind $2bn Manus acquisition
• Meta uses employee mouse movements and keystrokes for AI training
• Meta to cut 10% of workforce in first round of layoffs as AI investment drives major restructuring

Meta reported first-quarter revenue of $56.31 billion, beating analysts’ estimates of $55.45 billion. It expects second-quarter revenue of between $58 billion and $61 billion, broadly in line with forecasts.

However, these results were overshadowed by stronger performance from competitors, including Alphabet, Google’s parent company, which exceeded expectations for both revenue and profit.

"Meta’s results met expectations, but failed to impress investors, especially in the context of much stronger results from Google," said Gil Luria, managing director at D.A. Davidson.

His comments reflect growing pressure on Zuckerberg to demonstrate that the company’s heavy investment in AI will deliver long-term returns.

Tags

News Google Meta Big Tech