Meta’s earnings beat did not quiet Wall Street, as investors weigh AI-driven capex against ad momentum

Meta Platforms reported a strong first quarter, but its stock slide soon after the results highlighted a familiar investor dilemma: can the returns from artificial intelligence-led advertising keep pace with the company’s increasingly heavy spending on AI infrastructure and future products? The market reaction described in a new analysis by The Motley Fool pointed to a stock that “plummeted after earnings,” even as Meta’s core business delivered notable improvements. (Meta shares later recovered somewhat, but remained well below the prior 52-week high.)

In its official earnings release for the quarter ended March 31, 2026, Meta said revenue rose to $56.31 billion, up 33% year over year. Net income was $26.77 billion and diluted earnings per share was $10.44, figures that benefited from a large tax item. Meta said the results included an $8.03 billion income tax benefit, which it noted partially offset a prior non-cash tax charge from the enactment of a U.S. tax law change in 2025. Meta’s operating income for the quarter came in at $22.87 billion.

Meta’s advertising performance, which represents the vast majority of its revenue, showed both volume and pricing strength. In the company’s quarterly highlights, Meta reported ad impressions across its “Family of Apps” increased 19% year over year, while average price per ad increased 12% year over year. Meta also reported first-quarter capital expenditures of $19.84 billion, and it generated $32.23 billion of operating cash flow and $12.39 billion in free cash flow, according to the same release.

On the earnings call, Meta’s leadership tied some of the monetization gains to AI applied throughout its ad systems. CEO Mark Zuckerberg and other executives described deploying AI more deeply across ad layers, including changes aimed at improving ad conversion outcomes and inference performance when serving ads. In the call’s prepared remarks, Meta cited a more than 6% increase in conversion rate for landing page view ads driven by updates to modeling and learning techniques, and it also described expanding its Adaptive Ranking model to improve conversion rates across major Facebook and Instagram surfaces.

Beyond ads, Meta framed its AI investment as the foundation for its next generation of consumer and business products. Zuckerberg said Meta’s biggest milestone so far this year was the release of the Muse family of models, including Muse Spark, along with an upgraded version of Meta AI, described as the first release from Meta Superintelligence Labs. He said Meta AI usage increased “since releasing the updates,” and he also discussed business-oriented AI assistance being rolled out to eligible advertisers. In the call, Meta said it introduced AI-focused “connectors” in open beta that would allow advertisers to connect Meta ad accounts directly to AI agents.

Still, the central concern for investors was not whether Meta could generate strong quarterly results, but whether the company’s scale of spending would pressure margins and returns for longer than Wall Street can tolerate. Meta’s financial outlook includes a higher capex plan for 2026: it said it expects 2026 capital expenditures, including principal payments on finance leases, to be in the range of $125–145 billion, up from its prior $115–135 billion range. The company attributed the increase largely to higher component pricing and, to a lesser extent, additional data center costs to support future capacity.

Meta also reported meaningful ongoing losses in its Reality Labs segment, the part of the business tied to virtual and augmented reality hardware and software. In the earnings release, Reality Labs recorded an operating loss of $4.03 billion in the quarter, compared with a similar loss the year before. While investors can separate the market performance of the ad engine from losses elsewhere, persistent losses at a large scale tend to increase scrutiny when capex is rising across the group.

The remaining uncertainty is largely about timing and payoff. Meta did not disclose, in the earnings release, a specific dollar figure for how much of the capex relates strictly to AI training versus broader infrastructure components, nor did it provide a clear payback schedule for its consumer AI roadmap. Investors are left to interpret whether continued AI spending will translate into durable margin expansion, and whether Meta’s new AI products can be monetized on a timeline that matches the company’s infrastructure buildout. What to watch next is whether subsequent quarterly updates show that ad performance gains remain resilient while capex and Reality Labs losses either stabilize or improve.