Meta's Muse AI agent achieves strong growth, company introduces new shares to power investments

Meta introduced new non-voting shares on Wednesday to support its growing AI expansion, as executives unveiled their plans to build a future centered around its emerging AI agent business, Muse. The social media giant's shares increased by more than 4% in extended trading. Meta projected quarterly revenue exceeding Wall Street expectations and disclosed a robust growth rate for Muse, its new consumer AI agent app.

The company has been investing heavily in advanced chips and data centers to compete more effectively with AI leaders like OpenAI and Anthropic, positioning itself at the forefront of the burgeoning consumer AI agent market, despite a decline in free cash flow.

Meta plans to release a new class of non-voting Class C common stock in January 2027, effectively executing a two-for-one stock split, to fund acquisitions and attract top talent while preserving CEO Mark Zuckerberg's control. Zuckerberg reported that more than 10 million users in the US and Canada had created Muse accounts within a month and a half, and growth remained strong.

He anticipated Muse would eventually serve billions of users, potentially generating more revenue than the average Meta user, thereby fostering a network effect that helped build Meta's social media empire.

While Zuckerberg acknowledged that Muse's costs were higher than those of many of Meta's other new products, the company intends to monetize the agent somewhat earlier than its usual strategy. Meta CFO Susan Li indicated that Meta's AI businesses would start generating incremental revenue in 2027 and become a significant source of revenue diversification over time.

The executives emphasized that AI would be the focus for Meta's loss-making Reality Labs unit, which had led the charge on the company's vision to create the "metaverse," an immersive digital world that prompted its rebranding from Facebook to Meta in 2021.

In their financial report, the company revealed that it had raised its annual spending forecast, now expecting capital expenditure to range between $135 billion and $145 billion this year, up from $130 billion to $145 billion previously. Meta reported a free cash flow deficit of $2.12 billion in the third quarter, compared to a positive free cash flow of $10.63 billion a year earlier.

Revenue for the third quarter surpassed expectations at $64.60 billion, outpacing Wall Street's estimates of $63.37 billion. Meta also projected fourth-quarter revenue between $73 billion and $76 billion, surpassing estimates of $73.73 billion.

The early success of Muse and the introduction of a competitive series of AI models have helped justify Meta's spending to investors, even though some enterprises are limiting access to the agent due to security concerns. The market has transitioned from penalizing Meta for spending to rewarding it for presenting a compelling product story, according to Jesse Cohen, senior analyst at Investing.com.

However, legal challenges are escalating, including a $25 billion penalty ordered by a New Mexico judge after a jury found Meta had misled the state's residents about its data-sharing practices and enforcement of policies on hate speech and misinformation in a case involving British political consulting firm Cambridge Analytica.

The $25 billion penalty highlights the ongoing legal challenges Meta faces, which will continue into the following year. Meta warned in its guidance that it continues to face scrutiny and US trials related to youth-related issues that could impact its financial results.