Here's Why Meta's $135 Billion AI Bet in 2026 Could Backfire on Shareholders

Back in January, Meta Platforms (NASDAQ: META) announced it would increase its capex from $72 billion in 2025 to up to $135 billion in 2026. It plans to allocate most of that spending to expanding its "Meta Superintelligence Labs" AI division.

That strategy isn't surprising, since Meta uses AI algorithms across its core social platforms: Facebook, Instagram, Messenger, and WhatsApp. However, that plan could also backfire and weigh down its stock -- which has declined 3% year-to-date, for the foreseeable future.

Image source: Getty Images.

How could Meta's spending spree backfire?

Meta is the world's largest social media company, and it served 3.58 billion daily active people (DAP) across its family of apps (Facebook, Instagram, Messenger, and WhatsApp) at the end of 2025. That was a 7% increase from the end of 2024.

For the full year, Meta's revenue rose 22%, but its operating margin dipped by a percentage point to 41%, and its EPS fell 2%. Its EPS decline was mainly due to a one-time tax charge. Still, ongoing losses at Reality Labs (its augmented and virtual reality business), the expansion of its AI research and engineering teams, and AI infrastructure investments exacerbated that pressure. Its free cash flow (FCF) declined 16% to $43.6 billion.

Meta's plans to increase its AI infrastructure spending -- by buying more GPUs, developing custom chips, and building more data centers -- will further reduce its FCF in 2026. That decline will compress valuations, since many investors value tech companies by their FCF yield -- the percentage of FCF generated for every dollar invested in the stock -- rather than their EPS.

By dividing Meta's trailing-12-month FCF of $43.6 billion by its current market cap and multiplying it by 100, we get a FCF yield of 2.6%. A year ago, it had a trailing FCF yield of 3.3%. As Meta's higher capex reduces its FCF in 2026, its FCF yield will decline even further.

Meta's increased spending could also squeeze its operating margins, which are already under pressure from its Reality Labs investments. As a result, Meta will need its higher-margin advertising business to pick up the slack and subsidize those losses -- but that could be challenging if macro headwinds drive companies to rein in ad spending again.

Should long-term investors be concerned?

From 2025 to 2028, analysts expect Meta's revenue and EPS to both grow at a 20% CAGR. Its stock also looks undervalued at 19 times next year's earnings, presumably because the concerns regarding its near-term spending are compressing its valuation. But if you expect those investments to pay off and reinforce Meta's dominance of the social media and digital advertising markets, then its recent pullback seems like a great buying opportunity.

Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.