Meta's AI Bet: Is the Capex Hike Already Priced In?

The market had already priced in Meta's strong growth story. The surprise wasn't the beat; it was the magnitude of the acceleration and the capex hike that followed. For all the talk of AI spending worries, the stock surged because the reality exceeded the whisper number on the top line.

The numbers were clear. Meta reported Q4 revenue jumped 24% year over year to $59.9 billion, handily beating the analyst expectation of $58.6 billion. More importantly, the company guided for an even faster ramp in the coming quarter, projecting Q1 revenue growth between 26% to 34%. That's a significant acceleration from the 24% seen in the prior quarter, signaling the AI-driven ad engine is gaining real momentum.

The stock's reaction was a textbook "buy the rumor, sell the news" dynamic. Shares surged after the report, but the move was framed by the market's own uncertainty. Options pricing suggested traders expected a close to 6% move in either direction around the report, a high level of implied volatility that shows the setup was already tense. The beat provided the catalyst, but the market was still weighing the implications of the guidance.

The real expectation gap, however, opened with the capital expenditure forecast. While the growth narrative was solid, the capex hike was the key surprise. Meta upped its 2026 capex to a range of $115 billion to $135 billion, a massive jump from the $72.2 billion spent in 2025. This nearly doubling of planned spending was the critical piece of information that wasn't fully priced in. It confirmed the company's aggressive AI investment thesis, but also raised the stakes for future returns. The stock's post-report pop suggests investors initially saw this as a necessary bet on growth, not a red flag. The real test will be whether the promised revenue acceleration can justify this massive outlay.

The 2026 Expectation Reset: AI Spending vs. Ad Engine

The market is now caught between two powerful, conflicting narratives for 2026. On one side is the bullish ad growth story, powered by AI and new platforms. On the other is the bearish capex overhang, which has already weighed on the stock. The key question is which of these is more fully priced in.

The reality of the ad engine's momentum is undeniable. Meta's core business is scaling rapidly, driven by AI improvements in ad targeting and the expansion into new formats. The company is rolling out ads on WhatsApp and its new social media site, Threads, tapping into fresh revenue streams. This operational strength was clear in 2025, when the company grew revenue by a robust 22% to $201 billion, with Q4 growth accelerating to 24%. Yet, despite this solid performance, the stock's underperformance had nothing to do with its operational results. The market's fear was purely about the future cost of that growth.

That fear crystallized in the form of the massive capex hike. The stock's 2025 slump was a direct reaction to AI spending worries, a classic case of the market pricing in risk before the reality was confirmed. Now, with the company explicitly upping its 2026 capex to a range of $115 billion to $135 billion, the risk is no longer speculative-it's in the guidance. This sets up a tension where the market must decide: is the growth story worth the burn rate?

Bank of America's view captures this conflict perfectly. The firm sees a potential ad beat that could soothe spending fears, but also warns that a larger-than-expected capex outlook could fuel investor concerns. In other words, BofA is betting the ad momentum is priced in, but the capex risk is not. The stock's reaction to the Q4 report-a surge-suggests investors initially leaned toward the bullish side, seeing the capex hike as a necessary investment for future returns.

Yet, the forward valuation tells a different story. Meta's stock now trades at a forward P/E of roughly 23.5x. That's a significant discount to its own historical average, which has hovered around 30x. This valuation gap is the clearest signal that the market is pricing in the capex risk, not the growth. The forward multiple is compressing because investors are demanding a lower price for each dollar of expected earnings, a direct reflection of the higher uncertainty and capital intensity ahead.

The bottom line is that the ad engine's momentum is real and accelerating, but the market's skepticism about its cost is now baked into the share price. The expectation reset is complete: the bullish narrative is priced in, while the bearish overhang is the new baseline. For the stock to rally meaningfully from here, Meta will need to not just meet but exceed the already-high bar set by its own guidance, proving that the massive capex will generate returns that justify the premium.

Catalysts and Risks: What to Watch in 2026

The bounce-back thesis now hinges on a few clear, forward-looking events. The market has priced in the growth acceleration, but it needs to see execution on the cost side and a clear path to profitability from the metaverse.

The first major catalyst is the peak in Reality Labs' losses. Meta stated that losses for its metaverse division will be similar to those in 2025 and should peak this year. This is a critical piece of visibility. If losses truly stabilize at the $6 billion level in 2026, it confirms the worst of the metaverse drag is over. That would allow investors to focus purely on the core ad engine's returns, removing a persistent overhang. Any further widening of those losses, however, would break the narrative and likely pressure the stock.

The bigger risk, though, is the sustainability of the massive capex range. The company has committed to spending between $115 billion and $135 billion in 2026. The high end of that range is a direct threat to margins. If spending hits the top of the band, it would pressure the operating income that is already being used to fund this AI build-out. Bank of America's warning that a larger-than-expected outlook could fuel investor concerns is the market's own whisper number. The stock's forward P/E of roughly 24x already reflects some of this risk, but any deviation from the planned burn rate would force a reassessment.

Finally, the stock's 25% upside target from analysts, which implies a move to around $841, sets a high bar. That target assumes the ad growth story continues to play out without a stumble. The "sell the news" dynamic from the capex hike is real. The stock surged on the Q4 beat, but that move was a reaction to the guidance. Any future disappointment-whether in ad growth or in the capex efficiency-could accelerate a decline. The market has bought the rumor of AI-powered growth, but it will need to see the reality of sustained, high-margin expansion to justify the premium.