Key Points
Capital expenditures totaled $34.9 billion in the quarter, resulting in negative free cash flow of $2.1 billion.
Huge spending, sizable long-term debt, and paused share buybacks make Meta a riskier business.
The Magnificent Seven stock’s price-to-earnings ratio doesn't reflect the true nature of its operations.
Meta Platforms (NASDAQ: META) just gave investors a fresh update on its financial results. During the third quarter, the social media empire reported revenue of $64.6 billion, which soared 26% year over year. This marked the third straight quarter that the top line grew by more than 25%, an impressive feat given how massive the business is.
But the story continues to be how much money Meta Platforms is spending on artificial intelligence (AI) investments. Operating income fell 37%, compressing the operating margin from 40% in Q3 2025 to 20% in the latest quarter.
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And in what was probably an unsurprising development, the company posted negative free cash flow (FCF) of $2.1 billion in Q3. This hasn't happened since 2012, the year that Meta Platforms, then called Facebook, went public. Here's what the FCF milestone means for shareholders.
Image source: The Motley Fool.
Management is spending at a breakneck pace
During the third quarter, Meta Platforms' capital expenditures (capex) totaled $34.9 billion, up 80% year over year. This pushed FCF into negative territory, as the business burned $2.1 billion. It's been well over a decade since this has occurred. But given that fellow internet giant Alphabet reported negative FCF in the second quarter, investors must have seen this coming.
Meta Platforms is a hyperscaler. It's sparing no expense to build out AI-related compute capacity, primarily data centers and supporting technical infrastructure. Its capex figures have ballooned. And they are now expected to be $140 billion (at the midpoint) in 2026.
That spending is showing no signs of slowing. As of Sept. 30, Meta Platforms had $825 billion in future commitments, up from $643 billion as of June 30. That huge sum is equal to half of the company's total market capitalization. It's easy to believe this will continue to expand in future quarters.
This is no longer a capital-light enterprise that was printing cash. Meta Platforms has become a capital-intensive business. It's also borrowing to fund the AI build-out. Long-term debt is at $80.9 billion. Exactly four years ago, just before OpenAI launched ChatGPT, there was $9.9 billion in long-term debt on the balance sheet.
The consensus view among sell-side analysts is that Meta Platforms will report negative FCF of $10.6 billion in 2026. Next year, FCF will be in the red by almost $35 billion. Then in 2028, it will turn positive again. Take this forecast with a grain of salt, however, as nobody knows how the AI boom will evolve in the coming years.
For what it's worth, top-line gains have been robust. And during the third quarter, ad pricing rose 14%, while ad impressions grew 10%. Daily active users of its Family of Apps climbed to 3.64 billion. And Meta's Muse agent is a hit, with more than 10 million sign-ups in the U.S. and Canada so far. "About 25% of people who have set up Muse use it on any given day," founder and CEO Mark Zuckerberg said on the Q3 2026 earnings call.
Meet the new Meta
For investors, I think there are two parts to the story. This will shape your view of Meta Platforms as a portfolio candidate. The first development is that the business is probably riskier financially than it has ever been. Negative FCF and sizable debt show that this is the case. And there is uncertainty regarding the long-term payoff on the heightened capex.
Meta Platforms even paused stock buybacks. It repurchased $26.2 billion worth of shares in the first three quarters of 2025. But through the first nine months of this year, that figure was zero. A significant capital returns program is on hold.
The second takeaway is that assessing valuation is no longer a straightforward exercise. The stock looks compelling based on its price-to-earnings ratio of 22. But this doesn't paint the full picture. Shares trade at an expensive 65 times trailing FCF.
These are variables to consider before you buy this Magnificent Seven stock.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.