Meta Creates Class C Shares to Fund Its AI Spending Spree

Meta has created a new kind of stock to pay for its artificial intelligence ambitions. The company announced Class C shares, a new class of non-voting stock, alongside third-quarter results that beat revenue forecasts but carried a legal charge of nearly ten billion dollars tied to a teen-safety settlement. Revenue reached $64.60 billion for the quarter ended September 30, up 26 percent from a year earlier, according to Reuters, topping Wall Street estimates of $63.37 billion compiled by LSEG and clearing the top of Meta's own guidance range.

The new stock is the financial plumbing for one of the most aggressive spending programs in corporate history. Meta said it will establish the new shares through an amended Delaware charter with an effective date of January 19, 2027, then hand every existing shareholder one of them for each share they hold as a one-time dividend. The company expects the distribution to work like a two-for-one split, with no change to anyone's voting power. In a statement, Meta said the shares will be used to raise capital, pay employees, fund acquisitions and cover other corporate needs, and it was explicit about the reason: the scale of investment required to compete during the industry's AI transformation.

Investors cheered first, then flinched. The stock rose more than 4 percent in extended trading after the report, helped by the revenue beat and a fourth-quarter forecast of $73 billion to $76 billion, above estimates of $73.73 billion. By Thursday's close the mood had turned. Meta fell nearly 7 percent to $648.85, down from $697.52 a day earlier, and the Nasdaq dropped about 3 percent in a session traders described as an AI financing scare. Money rotated out of chips and mega-cap tech into government bonds, and the ten-year Treasury yield sank to 4.95 percent for its largest one-day drop since August 2025.

The spending behind the move

The scale of the outlay is what makes the new stock necessary. Meta spent $34.91 billion on capital expenditures in the quarter, including finance lease payments, while operating cash flow came in at $32.79 billion. Free cash flow went negative as a result, landing at a deficit of $2.12 billion against positive free cash flow of $10.63 billion a year earlier. The company raised the low end of its full-year capital spending forecast and now expects to spend between $135 billion and $145 billion in 2026, mostly on advanced chips and data centers. Management said it plans to keep investing aggressively next year.

CFO Susan Li told analysts the spending is already paying for itself in the core advertising business. She forecast that Meta's AI businesses would begin contributing incremental revenue the following year and become "a meaningful source of revenue diversification over time." Ad impressions rose 10 percent in the quarter and the average price per ad increased 14 percent, with advertising revenue reaching $63.06 billion, reported by stockanalysis.com from the earnings release.

Muse takes center stage

The centerpiece of Meta's AI story is Muse, the consumer AI agent launched in September that executives are now organizing the company's future around. Zuckerberg said more than 10 million people in the United States and Canada have set up Muse accounts in a month and a half, and that over a quarter of users make purchases through it. He said the company is holding off on charging everyone up front because it wants to establish "this Muse network" of people and businesses first, which he expects to be more valuable at scale. He acknowledged that serving Muse costs more than many of Meta's past product launches, and said the company would move to monetize the agent "somewhat sooner" than its usual playbook.

The early traction has given Meta cover for the spending. "The market has shifted from punishing Meta for spending to rewarding it for having a compelling product story," Jesse Cohen, a senior analyst at Investing.com, told Reuters. Executives also said artificial intelligence will now be the focus for Reality Labs, the unit behind the metaverse vision that inspired the company's 2021 name change. They said the unit's losses would narrow next year to around $15 billion as the company reallocates investment toward "other priority areas, primarily AI."

The legal bills keep coming

The quarter's headline earnings were weighed down by a $9.89 billion legal charge linked to Meta's August agreement with 52 state attorneys general over claims its platforms were designed to addict children. The settlement is worth up to $18 billion over a decade and is still pending court approval. The charge cut operating income 37 percent to $12.99 billion and operating margin to 20 percent from 40 percent a year earlier. Meta said operating income would have been $22.88 billion without it. Diluted earnings per share were $3.83, or $7.40 excluding the charge.

More legal costs may be on the way. A judge in New Mexico ordered a $25 billion penalty against Meta earlier on Wednesday after a jury found the company misled the state's residents about how it shared user data with third parties and enforced policies on hate speech and misinformation, in a case connected to British political consulting firm Cambridge Analytica. Meta has recorded an accrual for possible losses tied to the penalty and intends to appeal, according to its quarterly filing. Emarketer senior analyst Minda Smiley called the penalty a "stark reminder of the current legal challenges Meta faces, which will continue into next year."

The structure has a famous precedent. Google created a non-voting Class C stock in 2014 to protect its founders' control, and Meta's move follows the same playbook of separating economic ownership from voting power. The difference is the size of the bet behind it. Meta is laying the financial groundwork for a multi-year buildout, and it has now given itself a fresh currency to spend, acquire and hire with, all while Mark Zuckerberg keeps his grip on the company. Whether investors keep footing the bill is the question the next few quarters will answer. The early signs, reported by Reuters, are that the AI product story is strong enough to justify the spending, at least for now.