Meta’s AI spending spree has even the most bullish stock analysts wondering: How much capex is too much?

Meta Platforms has been spending too aggressively on artificial intelligence (AI) infrastructure and that will affect the tech giant’s profitability, according to a new investor note from Wall Street analyst firm MoffettNathanson.

The note, published on Tuesday, points out that Meta’s stock price (Nasdaq: META) has fallen almost 20% over the past month or so, exacerbated by its most recent earnings results, which were released on October 29.

MoffettNathanson has been a staunch defender of the Facebook and Instagram parent company, even when its shares have dipped in the past. But on Tuesday, analysts at the firm wrote, “we were obviously too complacent in our investment advice.”

Why is Meta spending so much on AI?

Meta along with fellow Big Tech firms including Amazon, Microsoft, and Google parent company Alphabet are in a high-stakes race to build out infrastructure and invest in the talent they see as necessary to compete in a world being transformed by generative AI.

However, investors and many experts have expressed concerns that we may be in an AI bubble similar to the one seen during the dotcom era. So the question is whether these investments will pay off in the long run.

“To be crystal clear, we feel that this time is different and that defending the stock — even at this level — is harder because of the ramping of the massive incremental bet that Meta, without a cloud business or pre-existing enterprise assets, has been making in building out a Meta Superintelligence business,” the note says. “Given the outlook, the issue from here is that even with strong top-line expectations, Q4 and 2026 margins will likely compress.”

In other words, MoffettNathanson’s team feels that Meta is overspending on AI, and it could come back to bite investors. Despite the relatively harsh words, the firm still rates Meta’s stock as a “buy,” though it has adjusted its price target, dropping it from $875 to $750.

Meta, and much of tech overall, has significantly increased its capital expenditures in the wake of the AI revolution.

But according to the note, Meta is “trying to punch above its weight” when compared to its peers. Although the company is spending a similar amount on AI infrastructure, it does not have a cloud platform like Microsoft, Alphabet, and Amazon, the analysts point out.

MoffettNathanson projects that Meta’s capex-to-revenue ratio will hit 47% next year. By comparison, Microsoft’s is 29%, Alphabet’s is 26%, and Amazon’s is 16%, MoffettNathanson estimates. 

“Meta lacks a comparable coherent pathway for monetizing GenAI directly,” the firm says.

Shares of Meta are trending downward this week along with the tech-heavy Nasdaq Composite as investors await tomorrow’s highly anticipated earnings report from AI chip giant Nvidia. Meta shares are down roughly 2% year to date.

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