By Christine Ji

Meta's core advertising business delivers a strong quarter, but investors are eyeing promising new businesses around the Muse personal assistant

More than a quarter of users on Meta's Muse agent use the assistant to shop, with an average transaction value exceeding $200, according to Meta.

Investors are buying into Meta CEO Mark Zuckerberg's artificial-intelligence vision.

Shares of Meta (META) rose over 4% initially in after-hours trading Wednesday following the latest earnings report, before settling to a 2% gain. The social-media giant grew revenues 26% from a year earlier to $64.6 billion, thanks to its AI-powered recommendation engines and rising advertising prices.

The rapid revenue growth gave investors proof that Meta's AI spending is materially improving its existing business, David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, told MarketWatch over email.

But Meta sees even more lucrative opportunities beyond its current business: On the earnings call, Zuckerberg said that the company's Muse agent could ultimately generate even more revenue per user than the company's family of apps like Instagram and Facebook. He painted a picture of a Muse business model comprised of subscriptions, ads, e-commerce tools and other features.

"The positive after-market reaction suggests the market liked the combination of strong growth and aggressive AI investment," Jake Behan, head of capital markets at Direxion, wrote in a note. "The company still has to prove how it can turn the product into a meaningful revenue stream, but the market is clearly willing to give Zuckerberg some credit for the opportunity."

Meta expects to spend between $135 billion and $145 billion on capital expenditures, or investments in physical assets, in 2026. The company spent $34.91 billion in the third quarter alone, which actually came in slightly under consensus estimates of $41.12 billion.

The intense AI spending led Meta's free cash flow for the quarter to turn negative for the first time since 2012. But after Meta's recent launch of its frontier-level Wonder models and the viral success of Muse, Wall Street seems to believe that the cash burn is more than justified.

Revenue and capital expenditures were "better than expected," Pivotal analyst Jeffrey Wlodarczak wrote in a note following the earnings call. He raised his price target on the stock to $960 from $930 previously, highlighting strong Muse-usage metrics. The company said that over a quarter of Muse users use the agent to shop, with an average purchase above $200.

Meta shares closed Wednesday near $700.

For the current quarter, Meta expects between $73 billion and $76 billion of revenue, which "leaves room for upside," Jefferies analyst Brent Thill wrote in a Wednesday note.

While Meta didn't share any information on capital expenditures for 2027, spending is likely to continue ticking upward. Meta announced the creation of a non-voting Class C stock that it plans to use for potential deals, capital raises, employee compensation and other purposes. The move also allows Zuckerberg to maintain his majority voting power. Thill anticipates that Meta's future funding plans will remain a "key focus."

-Christine Ji

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.