Meta Q3 Earnings: AI Gains Meet Rising Costs

Meta Platforms (META) reported third-quarter 2026 revenue of $64.6 billion on Oct. 21, up 26% year over year, driven by rapid adoption of its Muse personal-agent AI. However, management said rising expenses and heavier capital spending are pressuring near-term free cash flow and increasing investor concern about returns.

Quarter Results and Outlook

Meta’s total expenses for Q3 rose 68% year over year to $51.6 billion, including a $9.9 billion charge related to an August 2026 multistate attorneys-general agreement. The company raised its 2026 total-expense guidance to $175 billion–$179 billion to reflect that charge. Excluding the legal expense, management expects 2026 operating income to exceed 2025 levels.

Capital expenditures, including principal payments on finance leases, reached $34.9 billion in Q3, focused on servers, data centers, and network infrastructure. Meta narrowed its 2026 capex guidance to $135 billion–$145 billion, down from a prior range of $130 billion–$145 billion.

Muse Adoption and Economics

Management said more than 10 million people in the U.S. and Canada had set up Muse personal agents within about six weeks of launch, with roughly 25% of those users engaging daily. Mark Zuckerberg said, "We hit major milestones this quarter toward delivering personal superintelligence for everyone — including launching Muse and Muse Wonder, our first frontier model."

Muse remains compute-intensive, limiting its global rollout. Management expects serving-cost efficiency to improve more than tenfold over the next year through better use of off-peak capacity, more efficient models, and inference optimization. These gains could enable Muse to become profitable once revenue scales, though current unit economics were not disclosed.

Meta has begun migrating content-understanding models to its first-party Muse family. Offline tests showed these models outperform prior versions and cut per-unit content-processing costs by over 80% across Instagram, Threads, Facebook, and ads.

In late September, Meta launched Muse for small businesses, integrating it with Meta accounts and third-party services such as Shopify, QuickBooks, and Canva. Subscription tiers are priced at $20 and $100 per month for consumers and power users, while developer access to the Muse Wonder Full model costs $50 or $200 per month.

The quarter highlights strong AI-driven user growth alongside significantly higher spending commitments. Investors must weigh Muse’s rapid uptake and management’s efficiency targets against the raised expense and capex guidance as Meta pursues steep serving-cost reductions over the coming year.