Meta earnings: AI spending question looms after Nasdaq's 4% slide

Last week's rout in technology shares arrived at a notable moment for markets. The selloff followed hotter-than-expected inflation figures, though it ran counter to the bond market as Treasury yields declined sharply over the week. That naturally raises the question of whether some other factor is driving the pullback in tech stocks in particular.

Are investors finally noticing the weakness showing up in market breadth and momentum? Or are they starting to ask whether the heavy investment in artificial intelligence will actually deliver returns?

That context gives this week's earnings calendar plenty of significance. Among the big tech names, Meta is arguably the one I would single out as the standout against that backdrop.

The Nasdaq has already lost more than 4% over the past week, and while futures started the new week with a modest bounce, sentiment under the surface remains fragile. So even a strong earnings report may not be enough to win over investors this time.

Analysts forecast revenue near $63.3 billion, a 24% increase from a year earlier, along with earnings of $5.60 per share. That bottom-line figure would be a huge jump from the $1.05 recorded in the same period last year, though a one-off $15.9 billion tax charge in the earlier period skews the comparison.

In my view, however, the bigger question is not whether Meta beats those forecasts. As recent big-tech earnings have shown, the real focus is how much money these companies are spending to sustain their AI ambitions. The same dynamic should apply to Meta this week.

The company previously said it intends to spend $130 billion to $145 billion on capital expenditures this year. That is a striking number, and the financial effects are already becoming visible.

In the second quarter, revenue climbed 28%, while operating expenses rose 55%, driven partly by legal and restructuring costs. Operating margin came in at 31%, down from 43% a year earlier, and free cash flow fell to $784 million from $8.55 billion.

Make no mistake: Meta's advertising operation is still doing well. But being profitable enough to finance AI investments is not the same as showing those investments are genuinely paying off.

That is why the 2027 outlook will be a key thing to watch. Some Wall Street projections already point to capex rising toward $190 billion to $225 billion next year. But the question is how much more growth in spending investors will tolerate before they demand more concrete returns.

This is an argument that has been repeated since the beginning of the year, and every quarter that passes moves us closer to the point where the question can no longer be ignored.

With Treasury yields staying elevated, investors have less and less patience for costly AI promises. In that environment, Meta probably needs to provide more than just another rosy outlook to keep investors confident.