Meta stock is attracting fresh attention after Meta Platforms (NASDAQ: META), the parent company of Facebook, Instagram and WhatsApp, reported stronger-than-expected third-quarter 2026 revenue. The figures highlight the strength of its advertising business, but they also expose the financial demands of its AI strategy. Rising investment, weaker free cash flow and separate legal challenges may all shape investor sentiment.

Meta earnings: advertising drives revenue growth

Meta generated $64.60 billion in revenue in the quarter ended 30 September 2026, up 26% year on year and above the roughly $63.37 billion expected by analysts surveyed by LSEG.

Net income reached $9.86 billion, while diluted earnings per share were $3.83. Meta said earnings per share would have been $7.40 excluding a $9.89 billion charge linked to a settlement over the protection and mental health of younger social-media users.

Advertising remained the main growth engine. Ad impressions increased by 10% from a year earlier, while the average price per advertisement rose 14%. Nevertheless, reported operating margin narrowed to 20% from 40%, and total costs and expenses rose 68%, including the exceptional legal charge. These figures underline why revenue growth should not be assessed in isolation.

AI spending puts cash generation in focus

Meta raised the lower end of its 2026 capital expenditure forecast, putting the expected range at $135 billion to $145 billion. Third-quarter capital expenditures, including principal payments on finance leases, were $34.91 billion.

The company also reported that more than 10 million accounts had been created for its Muse AI assistant in the United States and Canada. This suggests early adoption, but it does not establish how much revenue the product may ultimately generate.

The financial trade-off is increasingly visible. Free cash flow was negative $2.12 billion in the third quarter, compared with positive $10.63 billion a year earlier. Operating cash flow remained positive, at $32.79 billion, so the negative figure specifically refers to free cash flow rather than the company's operating cash generation.

The question for markets is whether AI-related revenue and efficiency improvements can eventually offset infrastructure costs.

Legal uncertainty adds another risk

On 21 October, a New Mexico judge ordered Meta to pay a $25 billion penalty in a consumer privacy case linked to the Cambridge Analytica scandal. Meta has said it plans to appeal, meaning the legal outcome and ultimate financial effect remain uncertain.

This ruling is separate from the agreement announced in August with 52 US attorneys general over teen safety and mental health. That agreement provides for payments of up to approximately $18.59 billion, subject to conditions, and was linked to the $9.89 billion charge recognised in the third-quarter accounts.

Investors therefore need to distinguish expenses already recognised from potential future legal liabilities.

Meta stock reaction and the next catalysts

Reuters reported that Meta shares rose more than 4% in after-hours trading following the earnings release on 21 October. This was an initial market reaction, not a guarantee of subsequent performance.

Meta also announced plans for non-voting Class C shares, expected to take effect in January 2027. Subject to the relevant corporate steps, existing shareholders would receive one Class C share per outstanding Class A or Class B share. The economic effect would resemble a two-for-one stock split, without changing shareholders' voting power.

For the fourth quarter of 2026, Meta projects revenue of $73 billion to $76 billion. A more supportive scenario could develop if advertising demand remains resilient and AI products begin to strengthen monetisation. Conversely, higher infrastructure costs, margin pressure or adverse legal developments could challenge expectations.

Traders will be watching future capital expenditure guidance, operating margins, free cash flow and legal proceedings. Meta's results demonstrate the scale of its opportunity in AI, but also the uncertainty surrounding the cost and timing of potential returns. Market volatility may increase as new information emerges.