Meta and Tesla Earnings: Meta's AI Spending Tops Its Cash Flow as Tesla Cuts Capex

Good morning. Meta and Tesla reported after Wednesday's close with opposite spending plans. Meta's spending last quarter passed the cash its business brought in; Tesla cut its 2026 budget by about a fifth. Meta rose 2.2% after hours but is down 0.8% in early premarket trading, and Tesla is down 5.0% (CNBC, ~4:10 AM ET). Nasdaq-100 futures are down 1.8%, Seoul's Kospi closed down 3.5% and Brent crude is above $112 after Houthi strikes in Saudi Arabia.

Stocks, VIX and yields are Wednesday's close. Futures, oil and gold as of ~4:00 AM ET Thursday vs. Wednesday's settle. Dollar index and crypto as of ~4:10 AM ET (crypto vs. its 24-hour open). Nikkei and Kospi are Thursday's closes; Hang Seng is Thursday's session as of ~3:55 AM ET, minutes before its close. Stoxx 600 is Thursday's session, live, as of ~3:55 AM ET.

One-line read: Wall Street rallied on SpaceX, then Meta and Tesla reported and the night ran the other way.

Meta's third-quarter revenue rose 26% to $64.60 billion, above the $63.37 billion analysts expected, and it guided fourth-quarter sales to $73 billion–$76 billion, a midpoint above the $73.73 billion forecast (Meta; LSEG via CNBC). It also narrowed its 2026 capital-spending range to $135 billion–$145 billion, from $130 billion–$145 billion (Meta). Meta rose 2.2% to $712.65 after hours, then slipped to $691.74, down 0.8%, in early premarket trading (CNBC, ~4:10 AM ET). Tesla went the other way. It cut its 2026 capital-spending forecast to about $20 billion from more than $25 billion (Reuters). It also reported $1.53 billion of free cash flow, where analysts had expected a $4.92 billion cash burn (Reuters). Tesla fell 3.3% to $373.65 after hours and is down 5.0% to $367.18 premarket, after closing up 3.4% (CNBC). By morning, neither plan was getting applause.

The numbers: Meta spent $34.91 billion on capital projects in the quarter, more than the $32.79 billion its operations brought in, so free cash flow was negative $2.12 billion (Meta). By our math from its SEC filings, that is its first negative quarter since 2012, the year it went public. Earnings were $3.83 a share, or $7.40 excluding a $9.89 billion charge for its settlement with state attorneys general (Meta). Meta also created a new class of non-voting Class C shares, paid as a one-share-per-share dividend that it expects to work like a 2-for-1 stock split, effective Jan. 19, 2027 (Meta). Tesla's revenue was $28.05 billion and its adjusted earnings 48 cents a share, both above the $27.88 billion and 43 cents analysts expected (LSEG via CNBC). Net income still fell 43% to $787 million (Tesla; Reuters). Lam Research, which sells chipmaking equipment, fell 7.4% after hours and is down 8.8% premarket (CNBC, ~4:09 AM ET) after guiding December-quarter revenue to $8.60 billion, plus or minus $400 million, versus the $8.53 billion analysts expected (Lam; CNBC).

Why it matters: Meta and Tesla are among the largest holdings in S&P 500 and Nasdaq-100 index funds. Meta's spending is also revenue for the chip and data-center companies those same funds own. "Lower capex suggests less of an 'all-in' approach to the AI arms race than one would expect from Elon," Direxion's Ryan Lee said of Tesla (Reuters). "It frets when companies ramp spending, and it frets when they pull it back," KCM Trade's Tim Waterer said (Bloomberg). Asia read the pair as mixed news for the AI trade (Bloomberg), and its chip stocks closed lower: SK Hynix fell 5.5%, Samsung Electronics 4.0% and Tokyo Electron 7.0% (Yahoo Finance).

What to watch: Nasdaq-100 futures are down 1.8% and S&P 500 futures 1.0% as of ~4:00 AM ET (CNBC). Early premarket prints are thin and can swing before the 9:30 AM ET open. Alphabet and Microsoft report next Wednesday, Oct. 28, and Amazon on Thursday, Oct. 29 (CNBC).

The Nasdaq rose 1.05% to 26,702.86 Wednesday, the S&P 500 gained 0.58% to 7,757.17 and the Dow added 360.21 points, or 0.69%, to 52,856.09 (Reuters). SpaceX rose 7.8% to $159.31 in its first session after reporting its first profit as a public company (Reuters; CNBC). Super Micro Computer jumped 9.6% after forecasting revenue and margins above estimates, lifting Dell 5.3% and HPE 3.7% (Reuters). Tech was the best of the S&P 500's 11 sectors, up 1.6%, and the Philadelphia chip index rose 2.0% (Reuters; CNBC). The weak spot was communication services, down 1.3% (Reuters). AT&T sank 6.5% even after beating revenue and profit forecasts, T-Mobile fell 2.5% and Verizon 2.2% (Reuters). Huntington's Marc Dizard tied the drop to fears SpaceX "could become a formidable competitor" in telecom (Reuters). Netflix fell another 5.3% and Alphabet 1.6% (Reuters).

Why it matters: The S&P 500 closed 0.8% below its Oct. 6 record and is up 13.3% this year (AP; FRED; our math). The rally was narrower than Tuesday's: the equal-weight S&P 500 rose 0.34%, a little more than half the regular index's gain (CNBC). AT&T and Verizon sit in S&P 500 funds and plenty of dividend funds; on Wednesday, a rocket company cut in on their line.

Fed funds futures put a 14.9% chance on a quarter-point hike at next week's meeting, down from 33.2% a week ago and 57.6% a month ago (CME FedWatch via Reuters, Oct. 21). The 10-year Treasury yield ended Wednesday at 5.13%, up 1 bp, and the 2-year rose 2 bp to 4.81% (US Treasury). Overnight, investors bought Treasuries for safety: the 10-year was at 5.08% as of ~3:54 AM ET (CNBC), and the 30-year yield fell to its lowest since Sept. 23 (Bloomberg). The Treasury sold $13 billion of 20-year bonds at 5.469%, with bids for 2.73 times the amount on offer, an auction analysts called mixed (Reuters). Today brings weekly jobless claims at 8:30 AM ET; the last reading was 199,000, against 200,000 expected (Labor Department via Bloomberg). The Treasury also sells $26 billion of five-year inflation-protected notes (TIPS), with bids due at 1:00 PM ET (TreasuryDirect).

Why it matters: The 10-year sets the tone for 30-year mortgage rates, which averaged 7.40% last week (Freddie Mac via FRED). Freddie Mac's new weekly number lands today at noon ET. Bond funds in a 401(k) are priced off these same yields.

Brent is up 3.2% to $112.26 and US crude (WTI) 2.7% to $99.79 as of ~4:00 AM ET (CNBC), with Brent near a five-month high (Reuters). Yemen's Houthis struck a civilian airport in Dammam and a Saudi oil field on Wednesday, killing at least three people (Reuters). The US then ordered some diplomats and their families to leave Saudi Arabia (Reuters). Iran's Revolutionary Guards said Thursday their navy hit four vessels involved in illegal oil transfers in the northern Persian Gulf (Reuters). On Wednesday itself, Brent settled up 3 cents at $108.82 and WTI fell 67 cents to $97.15 (Reuters). US crude stockpiles fell 3.06 million barrels last week, more than the 820,000-barrel draw analysts expected, while diesel and heating-oil stocks rose 1.68 million barrels (EIA via Reuters). The Energy Department offered to lend up to nearly a third of its 1-million-barrel emergency heating-oil reserve to ease diesel shortages (Reuters).

Why it matters: Fuel is a direct cost for airlines and truckers, and a direct line on your gas bill. Southwest cut its 2026 profit forecast Wednesday, citing higher fuel prices; it is the third US carrier to do so this month (CNBC).

Meta's AI spending outran its cash. For context, in early 2023 Meta spent about $7 billion a quarter on buildings, servers and chips and kept about $7 billion of free cash. Notice the last two quarters: spending jumped to $34.9 billion and passed the $32.8 billion its business brought in, the first time since 2012 that the gap ran negative.

Source: Meta 10-Q and 10-K cash-flow statements via SEC XBRL (Q1 2023–Q2 2026) and Meta's Q3 2026 earnings release, Oct. 21, 2026. Capital spending = purchases of property and equipment plus finance-lease principal, Meta's own free-cash-flow definition. Our math.

Free cash flow is the cash a business brings in from operations, minus what it spends on long-lasting things like buildings, servers and chips. It is the money left to pay dividends, buy back stock or save. Meta's operations brought in $32.79 billion last quarter; it spent $34.91 billion on data centers and equipment, so the leftover was negative $2.12 billion (Meta). Think of a household whose paycheck rose, but whose kitchen remodel cost more than the paycheck this month. A negative quarter is not a loss: Meta still earned $9.86 billion in profit (Meta). It means the spending now has to be paid from savings or borrowing until it pays off.

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That's the desk. See you Friday at 6 AM ET.

— The Overnight Desk Team

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