Shares of Meta Platforms (NASDAQ: META) are down approximately 3% in 2026, lagging behind the S&P 500, which is up nearly 1% over the same period. The underperformance is not new, as the company’s total return in 2025 was around 13%, compared to the S&P 500’s 18%. Despite Meta’s strong financial performance, including fourth-quarter revenue of $59.9 billion, a 24% increase year over year, the stock is trading as if investors are more focused on the company’s spending plans than its underlying business momentum.

Strong Advertising Growth and Profitability

Meta’s core business remains strong, with full-year revenue rising 22% in 2025 to $201.0 billion. The growth is largely driven by advertising, with ad impressions across Meta’s Family of Apps increasing 18% year over year in the fourth quarter, and average price per ad rising 6%. Total daily active users across its apps averaged 3.58 billion in December, up 7% year over year, highlighting the platform’s appeal to advertisers.

Meta’s profitability is also solid, with operating income of $30.8 billion in the fourth quarter from its advertising business, which more than offset the $6.0 billion operating loss from its Reality Labs segment, which includes virtual reality devices and AI glasses. The company’s free cash flow was $43.6 billion in 2025, even with capital expenditures of $72.2 billion. Meta returned $31.6 billion to shareholders in 2025, including $26.3 billion in share repurchases and $5.3 billion in dividends.

Rising Costs and Capital Intensity

The issue lies in Meta’s capital-intensive posture in 2026. In the fourth quarter, the company’s costs and expenses rose 40% year over year, outpacing revenue growth. This led to a decline in Meta’s operating margin from 48% to 41%, a 700-basis-point drop. Management’s 2026 outlook further highlights the pressure, with capital expenditures expected to range from $115 billion to $135 billion in 2026, a 60% to 90% increase from $72.2 billion in 2025.

Meta also expects full-year total expenses to range from $162 billion to $169 billion, compared to $117.7 billion in 2025. This significant increase in spending has raised questions about whether the company’s AI investments are a wise gamble or a risky bet. Despite this, management expects 2026 operating income to exceed 2025 levels, though the growth in profitability may be limited.

Investor Caution Amid Uncertainty

Investors are debating whether Meta’s aggressive capital spending is justified. While the company’s advertising business is still growing rapidly, and it is guiding for even faster growth in Q1, the stock’s valuation at 27 times earnings may be reasonable given its momentum. However, analysts caution that Meta remains heavily tied to advertising demand, which could slow quickly if the economic backdrop weakens.

“Once a company commits to $115 billion to $135 billion of annual capital spending, timeline risk rises,” one analyst noted. “If the payoff materializes more slowly than expected, investors could lose faith in Meta’s capital allocation practices.”

Despite the underperformance, some analysts see long-term potential in Meta’s stock. “The core advertising business is still growing rapidly, and it is guiding for even faster growth in Q1,” said one analyst. “I think Meta stock looks like a buy after this stretch of underperformance.”

Meta’s management has expressed confidence in its strategy, stating that it expects 2026 operating income to exceed 2025 levels despite the infrastructure ramp. However, the company’s ability to maintain profitability amid such a significant increase in expenses remains a critical factor for investors.

The stock’s future performance will depend on the success of its AI initiatives and the broader economic environment. As the company moves forward, investors will be closely watching its ability to balance growth with profitability.