Meta Expands Nvidia AI Chip Deal, Amplifying High Capex Narrative Amid EU Risks

What happened

Meta Platforms has expanded its partnership with Nvidia to acquire millions of AI chips, including standalone CPUs and next-generation GPUs, for a massive data center build-out. This move directly supports Meta's aggressive 2026 capex guidance of $115B-$135B, aimed at scaling AI infrastructure to improve ad ranking and attribution. The deal also includes networking technology and AI feature support for WhatsApp, aligning with Meta's strategy to monetize new ad surfaces like Threads and Status ads. However, this expansion heightens concerns about potential capex overruns, as the company must balance these investments with EU regulatory headwinds, including the Q1 2026 rollout of 'Less Personalized Ads' that could dent European revenue. Critical investors now face a binary outcome: either AI-driven ad strength justifies the spend, or escalating costs undermine the commitment to 2026 operating income exceeding 2025.

Implication

The expanded Nvidia chip deal reinforces Meta's bet on AI infrastructure, potentially boosting ad revenue through better targeting and attribution, which could support the stock if execution aligns with guidance. However, it elevates the risk of capex exceeding the $135B upper bound, threatening the explicit promise that 2026 operating income will outpace 2025 despite higher costs. Investors must scrutinize Q1 2026 revenue and early EU auction metrics to assess whether ad momentum can 'carry' this spend, as any shortfall could trigger a de-rating. Additionally, the reliance on external suppliers like Nvidia adds dependency risks, and failure to demonstrate ROI from AI could exacerbate sentiment shifts toward 'AI bubble' fears. In essence, this news sharpens the investment decision: wait for proof points on capex containment and EU resilience before committing, as the margin of safety remains thin.

Thesis delta

The expanded Nvidia deal does not alter the core investment thesis but amplifies existing risks around capex execution and AI payoff. It underscores Meta's high-spend trajectory, increasing the likelihood of hitting or exceeding the $135B capex ceiling, which could challenge profitability if ad revenue falters. Investors should remain in 'WAIT' mode, focusing on Q1 2026 results and EU metrics to validate whether AI investments are translating into sustainable growth amid regulatory pressures.