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MyWallSt Analyst Team
In our previous piece, Is Massive AI Investment Paying Off? What Meta and Tesla’s Spending Means for the S&P, we looked at the scale of AI spending by Meta, Tesla, and the rest of Big Tech, and why it matters for anyone holding S&P 500 or Nasdaq index funds. The core question was whether hundreds of billions in capital expenditure was beginning to generate measurable returns, or whether valuations were still running ahead of the evidence.
Meta and Tesla have now reported. The results give a clearer, if still incomplete, picture.
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Meta: Strong Ads, Heavy Infrastructure Bill
Meta delivered revenue of $64.6 billion, up 26% year over year and ahead of expectations. Advertising remained the driver, and the company pointed to AI improvements in engagement and monetization as already contributing. Fourth-quarter guidance of $73–76 billion was solid. Early traction for Muse was noted positively.
The spending side remains intense. Capital expenditures reached $34.9 billion in the quarter. Full-year 2026 guidance was narrowed to $135–145 billion (with the lower end raised). Free cash flow turned negative at roughly $2.1 billion. A large legal charge further depressed reported operating income. Meta also announced a new class of non-voting shares, giving it additional flexibility to fund AI infrastructure.
Tesla: Margins Stabilize, Profitability Under Pressure
Tesla reported revenue of $28.05 billion, essentially flat year over year. Non-GAAP earnings slightly beat estimates, and automotive gross margins excluding regulatory credits improved to 18.1%. Free cash flow came in better than some expected at $1.53 billion.
Operating income, however, fell 56% year over year. Research and development spending rose significantly as the company continues to invest in AI, Full Self-Driving, and robotics. FSD subscriptions reached 1.74 million, and the company highlighted further Robotaxi progress. Management also reduced its full-year capital expenditure guidance.
Answering the Original Question
The evidence is mixed but consistent with the framework we outlined before the results. There are tangible early signs that AI investment is contributing to revenue and product traction—particularly in Meta’s advertising efficiency and Tesla’s FSD attach rates. At the same time, the scale of spending continues to pressure free cash flow and operating margins. Neither company has yet shown that the returns are large enough, or consistent enough, to remove the concentration risk that exists in the major indexes.
For investors in index funds, the practical takeaway remains the same: a meaningful portion of portfolio performance still depends on a small number of companies successfully converting very large AI capital expenditures into durable earnings power. These results neither confirm the thesis is fully working nor show it breaking. They show it is still early and capital-intensive.
Conclusion
Massive AI investment is now a core feature of the S&P 500’s largest constituents. Meta and Tesla’s latest reports demonstrate that their core businesses can currently fund the buildout and that early product benefits are appearing. They do not yet demonstrate that the returns are sufficient to justify valuations without ongoing scrutiny of cash flow and margin trends. The question is still open, and the next several quarters will matter more than any single earnings print.
This is Part 2 of our look at AI investment and the S&P 500. Read Part 1 here.