Meta's Revenue Growth Is Impressive, but Its AI Budget Is Getting Harder to Ignore

Shares of social media giant Meta Platforms (NASDAQ: META) sold off after the company reported its first-quarter 2026 results last week. This is despite the company's revenue growth of 33% year over year to more than $56 billion. In addition, Meta's ad impressions and ad pricing both moved sharply higher. And its operating margin was impressive at 41%.

So why did the stock drop? Once again, the social network's AI bill is getting bigger. It's weighing on earnings and spooking some investors.

Image source: Getty Images.

Strong top-line momentum

Meta's growth story is impressive. Its strong first-quarter top-line growth rate was an acceleration from 24% growth in the fourth quarter and even higher than its 26% growth in Q3.

Behind Meta's growth was a 19% year-over-year increase in ad impressions -- and the average price per ad increased 12%.

Engagement on Meta's apps remained strong, too. Daily active users rose 4% year over year in March.

And the company expects its strong top-line momentum to continue. Management guided for revenue of $58 billion to $61 billion in Q2. The midpoint implies about 25% year-over-year growth.

But underneath all of this were some massive costs -- and a plan to ramp spending even more in the coming quarters.

The AI bill keeps growing

Alongside its results, Meta raised its full-year 2026 capital expenditures outlook (including principal payments on finance leases) to a range of $125 billion to $145 billion -- up from a prior range of $115 billion to $135 billion. Management cited higher component pricing (particularly memory pricing) and additional data center costs to support future capacity.

To put the trajectory of this spending ramp into perspective, Meta spent about $39 billion on capital expenditures in 2024 and about $72 billion in 2025. The midpoint of its updated 2026 guidance puts spending near $135 billion -- close to double last year's level, and more than the company spent in 2024 and 2025 combined.

First-quarter capital expenditures alone were $19.8 billion, up about 45% from $13.7 billion a year earlier.

The larger spending plan, fortunately, didn't change Meta's full-year total expense guidance. But it was already extraordinarily high -- at $162 billion to $169 billion.

With all of this said, it makes sense that the company is ramping up spending. Even the company's compute needs today -- before it builds and ships the personal superintelligence it aspires to create -- are significant.

"Our experience so far has been that we have continued to underestimate our compute needs even as we have been ramping capacity significantly," Li said during Meta's first-quarter earnings call.

Management is aware of the optics. CEO Mark Zuckerberg used part of his prepared remarks to emphasize the company's efforts to keep spending efficiently, including rolling out more than a gigawatt of custom silicon developed with Broadcom and adding AMD chips alongside its Nvidia systems.

"One of the primary goals of our Meta Compute initiative is to lead the industry in efficiency of building compute, and we expect that will be a strategic advantage over time," Zuckerberg explained during the call, when discussing how these custom silicon initiatives are part of the company's broader effort to focus on increasing the efficiency of its investments.

The company also plans to reduce headcount in May -- and it even ended Q1 with headcount down 1% from Q4.

Trading at a forward price-to-earnings ratio of about 20, with a market capitalization near $1.55 trillion as of this writing, the stock's valuation isn't unreasonable given its growth profile. But the recent slide is a reminder that investors are increasingly weighing the upside of Meta's AI ambitions against the cost of getting there.

Ultimately, I like the stock here. But I view it as a high-risk investment. Investors who decide to buy the dip, therefore, may want to keep any position in the stock small. If the company can't prove that it is earning a good return on its big spending, investors could lose faith in management's capital allocation decisions -- and the stock could slip. Of course, earnings would also take a hit in this case -- because these capital expenditures eventually show up on the income statement as depreciation, weighing heavily on earnings.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.