Meta falls 7%, Lam Research 11.8% as concerns mount over AI costs
Key Facts
Meta shares fell 7% and Lam Research shares dropped 11.8% in Thursday’s session on October 22, after both companies reported results the previous day. Meta’s decline came despite quarterly revenue topping analysts’ expectations, while The Associated Press said its profit fell short. Lam also fell, even though its revenue and earnings for the summer quarter slightly exceeded expectations, according to the news agency. Meta closed at $648.85, compared with $697.52 in the previous session, while Lam ended at $230.15 after closing at $260.81. The Nasdaq Composite fell 2.6% in the same session, as technology and AI stocks declined.
Legal expenses help explain the gap between Meta’s operating performance and its reported profit. Third-quarter expenses included a $9.89 billion legal charge, and the company said earnings per share would have been $7.40 excluding its impact. The available facts therefore do not support describing reported earnings per share as below analysts’ expectations: the comparison cited by The Associated Press says total profit fell short, without details establishing that earnings per share itself missed. Meanwhile, Meta’s board approved the creation of a new class of publicly traded, non-voting shares, effective in January 2027. The Associated Press said the aim includes increasing Meta’s capacity to raise capital to fund AI infrastructure investments and other expenses.
Meta’s decision on the new share class comes as the expansion of AI infrastructure faces questions over its cost and financing. The Associated Press linked pressure on AI stocks to higher borrowing costs for building data centers and buying more chips, as well as concerns that stock valuations are elevated even as companies continue to grow. The Nasdaq fell 2.6% on October 22, while the S&P 500 posted its worst day since July, according to the news agency. In Reuters’ account cited in the evidence material, the Nasdaq’s decline was its biggest daily percentage loss since early June. These moves place Meta’s decline within broader pressure on the sector, while the reasons for the drops at Meta and the chipmaking equipment company differ.
Lam Research, by contrast, described its September quarter as a record for revenue, earnings and earnings per share. Chief Executive Tim Archer said rising AI-related semiconductor demand, increasing device complexity and the company’s focus on operational execution helped it deliver those results. The GAAP operating margin rose to 40% in the September quarter from 37.4% in the June quarter, an increase of 260 basis points. The company said its operating margin exceeded 40% for the first time in its history. The results did not settle the market’s response: the stock fell 11.8% after entering the session up 52.4% year to date, compared with an S&P 500 gain of about one-quarter of that percentage, according to The Associated Press.
Attention focused on Lam’s guidance for the quarter ending December 27, 2026. The company set revenue at $8.60 billion, with a margin of $400 million, and non-GAAP diluted earnings per share at $2.33, with a margin of $0.15. The Associated Press said the midpoint of its earnings-per-share guidance range was slightly below analysts’ estimates, even though the previous quarter’s results slightly exceeded their expectations. The company added on its earnings call that revenue guidance would have been slightly higher without near-term supply chain constraints, and said it was working to manage them. The call forecast that supply constraints would affect near-term revenue, without the available facts specifying the size or timing of the impact. The focus now turns to December-quarter results and Lam’s ability to manage the constraints that limited its guidance.
On Meta’s AI product Muse, Mark Zuckerberg said more than 10 million people in the United States and Canada had created accounts, and about 25% of account holders use it on any given day. He also said the company expects to improve its cost efficiency by more than 10-fold over the next year. Zuckerberg linked that improvement to the prospect of the product reaching profitability once revenue sources reach sufficient scale. This adds an indication of Meta’s efforts to develop revenue alongside infrastructure spending, while the new share class remains one means of increasing its capacity to raise capital. The stated timelines remain an improvement in Muse’s cost efficiency over the next year and the new share class taking effect in January 2027.