Meta stock sinks 10% after earnings: why analysts are cutting targets

Shares of Meta Platforms fell sharply in early trading on Thursday, dropping around 9%.

The move comes despite the company reporting better-than-expected first-quarter results, as investors reacted to a significant increase in capital expenditure guidance.

The decline underscores growing market sensitivity to the cost of artificial intelligence investments, even as revenue and profitability remain strong.

Earnings beat overshadowed by spending concerns

Meta reported adjusted earnings per share of $10.44, well above Wall Street expectations of $6.67 and up from $6.43 a year earlier.

Even excluding a large tax benefit, earnings stood at $7.31 per share, still ahead of estimates.

Revenue for the quarter came in at $56.3 billion, exceeding expectations of $55.6 billion and rising 33% year-on-year.

However, the earnings beat was overshadowed by the company’s decision to raise its capital expenditure outlook.

Meta now expects capex to reach $135 billion at the midpoint for the year, up from $125 billion previously.

“This reflects our expectations for higher component pricing this year,” the company said in its earnings release.

Free cash flow under pressure

The increase in spending is weighing on free cash flow, with Meta opting not to repurchase shares during the quarter.

By comparison, the company spent nearly $13 billion on buybacks in the prior year.

Chief Financial Officer Susan Li said on the earnings call, “Our experience so far has been that we have continued to underestimate our compute needs.”

The rising investment requirements highlight the scale of infrastructure needed to support Meta’s AI ambitions, particularly as competition intensifies across the sector.

The company is said to be planning to raise between $20 billion and $25 billion through an investment-grade bond sale.

Wall Street analysts cut price targets

Analysts said the higher spending could reignite debate over the return on investment from Meta’s AI initiatives.

Cantor Fitzgerald analyst Deepak Mathivanan said the increase in capex is “likely to resurface debates on Meta’s capex return on investment capital (ROIC),” though he added that the company has “plenty of levers to capture healthy returns on its capex spend in the core business.”

Cantor maintained an Overweight rating but lowered its price target to $750 from $850.

KeyBanc analysts retained a $760 price target, describing Meta as being in a “show me” phase of the AI cycle, with questions around newer initiatives such as personal and business agents.

Despite concerns over spending, Meta’s core advertising business showed continued strength.

Daily active people rose 4% year-on-year to 3.6 billion, though the figure declined sequentially. The company said user growth was affected by access restrictions in Iran and Russia.

Meta increased ad impressions by 19% while also raising prices by 12%, indicating strong demand and improved targeting capabilities, likely supported by its AI investments.

Stifel lowered its price target to $780 from $805 while maintaining a Buy rating, noting that revenue and earnings exceeded expectations even after adjusting for one-time benefits.

Guggenheim also reduced its price target to $800 from $850, citing higher expense forecasts that could weigh on earnings and cash flow in future years.

Meanwhile, BMO Capital cut its price target to $720 from $730 and raised its capex projections for 2026 and 2027, pointing to concerns about the company’s ability to generate returns on its AI investments.