Does Meta need a decade of efficiency?

• Meta’s capex will increase to $70-72 billion in 2025 from $30 billion in 2024.

• Operating margin expanded from 25% to 42% after eliminating 21,000 jobs in 2023.

• Meta is training Llama 4 on over 100,000 H100 GPUs.

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Mark Zuckerberg declared 2023 the “year of efficiency” after Metaplatforms (NASDAQ:META) laid off 21,000 employees and cut spending. Operating margins expanded from 25% to 42% and shares tripled. But Meta guided capital expenditures to $70-72 billion by 2025, up from $30 billion in 2024. That’s an arms race.

Third quarter revenue reached $51.24 billion, an increase of 26% year-over-year. Operating income reached $20.54 billion with a margin of 40%. Net income plunged 83% to $2.71 billion due to a one-time tax charge of $15.93 billion. Excluding that, adjusted earnings would be $18.64 billion. Capital spending increased 135% to $19.37 billion in a single quarter.

Zuckerberg laid out the logic in the third quarter earnings call:

It is clear that there are many new opportunities to use new advances in AI to accelerate our core business that should have a strong return on investment in the coming years, so I think we should invest more there (…) our investments in AI continue to require serious infrastructure, and I hope to continue investing significantly there as well.

This is a CEO who explicitly says “we should invest more,” not “we should maintain efficiency.” Meta is training Llama 4 on a cluster exceeding 100,000 H100 GPUs, larger than anything competitors have revealed. Chief Financial Officer Susan Li warned of a “significant acceleration in infrastructure spending growth” by 2026 as depreciation and operating costs from the expanded fleet will hit the bottom line.

Meta’s 40% operating margin exceeds Alphabet (NASDAQ:GOOGL) at 30.5%. The company’s 82% gross margin provides protection. Meta AI now has 500 million monthly active users, and AI-powered feed improvements drove an 8% increase in time spent on Facebook and a 6% increase in time spent on Instagram. More than one million advertisers used generative AI tools to create 15 million ads last month, with a 7% increase in conversions.

But if infrastructure spending doubles while revenue growth remains at 26%, something has to give. Operating expenses are projected between $116 billion and $118 billion by 2025, an increase of 22-24%. Reality Labs’ losses continue to mount. The company is adding costs everywhere AI touches.

The market is pricing in a return to efficiency. Meta trades at 22 times forward earnings, versus 29 times trailing earnings, implying analysts expect a margin recovery. The consensus price target of $838 suggests a 12% upside. But quarterly earnings growth just came in at negative 83%, even adjusted for the tax burden.

Meta doesn’t need a decade of efficiency. It needs AI development to bear fruit within three years, or margins will shrink. Zuckerberg is betting that infrastructure spending creates a gap that competitors can’t match. The alternative is that you are simply spending more efficiently than before while still spending much more.

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