Meta’s core ad engine is still strong, but AI spending and Reality Labs losses keep the growth story uncertain

Meta Platforms is facing a familiar debate from investors: the company’s advertising business is performing well, but its next phase of growth depends on bets that are harder to measure in the short term, including artificial intelligence and new computing experiences. A recent market column highlighted Meta as “speculative” largely because success in AI is not guaranteed, even as the company continues to commit large sums to build the infrastructure behind its models.

In its first-quarter 2026 earnings release, Meta reported revenue of $56.31 billion, up 33% year over year, and said the quarter showed strong momentum across its apps. The company reported family daily active people of 3.56 billion for March, up 4% year over year, while ad impressions rose 19% and the average price per ad increased 12%. Meta also reported free cash flow of $12.39 billion for the quarter.

The same results also underline why the growth outlook remains contested. Meta said capital expenditures, including principal payments on finance leases, were $19.84 billion in the quarter, and the company raised its full-year 2026 capex outlook to a range of $125 billion to $145 billion, from a prior range of $115 billion to $135 billion. In addition, Reality Labs, Meta’s virtual and augmented reality business, reported $402 million in revenue and a loss from operations of $(4.028) billion, reinforcing that losses in the unit remain a major swing factor for investors’ expectations.

While ad performance remains the core of Meta’s financial engine, the company is trying to translate its AI progress into products that could improve engagement and, eventually, monetization. In April, Meta announced Muse Spark, the first model from Meta Superintelligence Labs. Meta said Muse Spark is now powering its Meta AI assistant in the Meta AI app and, and that it is starting to roll out on Ray-Ban Meta and Oakley Meta glasses in the U.S. and Canada, with additional availability planned for its AI glasses lineup later.

Those product updates are part of the rationale behind the bullish case that investors can still benefit from the company’s platform scale, even if new sources of growth are not yet fully proven. In the market column, the argument was that Meta’s user base is already enormous and that its revenue is still heavily tied to advertising, which can limit how quickly the business can grow purely by adding new users. The piece also pointed to the company’s first-quarter revenue growth and rising engagement indicates as evidence that the ad engine can still accelerate, even as capex and AI spending reshape near-term cash flows.

Meta’s own disclosures add another layer of uncertainty. In the company’s first-quarter release, Meta emphasized that results can differ from expectations and cited risks including reliance on advertising revenue, dependence on data indicates and mobile ecosystems, and changes to content or third-party policies that can affect ad delivery. The outlook also noted that Meta is monitoring regulatory matters, including youth-related scrutiny and additional U.S. trials scheduled for the year that could result in a material loss.

There are also limits to what can be concluded from the disclosures so far. In Meta’s segment reporting for the quarter, the company presented revenue and income or loss from operations for only two segments, Family of Apps and Reality Labs, and did not provide a separate line item for revenue attributable specifically to Meta AI features or Muse Spark. That means investors are still left to connect the dots between AI product rollouts and future monetization, while Reality Labs losses and the trajectory of capex remain visible in the financial statements.

Looking ahead, the next earnings cycle will likely be where the debate sharpens. Investors will be watching whether Meta sustains ad growth while absorbing the higher capex plan, whether Reality Labs losses narrow or continue to widen, and whether usage and engagement tied to Muse Spark-powered experiences translate into measurable improvements in ad performance or new revenue streams.