Meta Platforms’ shares fell 10% in extended trading on Wednesday after the Facebook and Instagram parent reported a dramatic 91% plunge in second-quarter free cash flow, highlighting the mounting financial burden of its aggressive artificial intelligence investment strategy despite robust revenue growth.
The company posted free cash flow of $784 million for the quarter ended June 30, down sharply from $8.55 billion in the same period last year, as spending on AI infrastructure accelerated.
The weak cash flow performance mirrors a broader trend among Big Tech companies investing heavily in artificial intelligence. Last week, Alphabet reported its first-ever cash-flow-negative quarter, triggering a sell-off in its shares, while Microsoft also reported a 23% decline in free cash flow, although investors were reassured by strong growth in its cloud business.
Meta Chief Executive Officer Mark Zuckerberg defended the company’s spending spree, saying it reflects a long-term strategy to build AI-powered products and services.
“We expect that a significant portion of our compute is going to go towards training our models, growing our core business and delivering personal agents and new products, but we also expect to grow a large business serving large customers as well,” Zuckerberg told analysts during the company’s earnings call.
Responding to repeated questions over how Meta intends to generate returns from its enormous AI investments, Zuckerberg argued that the company is uniquely positioned to commercialise personal AI assistants at scale.
He said the company is making a deliberate bet that personal AI agents will become a major consumer business, despite the significant near-term costs.
The second-quarter cash flow marked Meta’s weakest performance since late 2022, when investors similarly questioned its heavy spending on the metaverse. The company’s Reality Labs division has accumulated more than $80 billion in operating losses since its inception.
Meta also missed Wall Street’s earnings expectations, reporting earnings per share of $6.18, below analysts’ average forecast of $7.22, according to LSEG data.
Mike Proulx, a senior executive at research firm Forrester, said investors are beginning to feel the impact of Meta’s spending.
“Meta’s AI spend was easier to celebrate when margins were expanding. It’s harder to celebrate now that the costs are showing up in the numbers,” Proulx said.
“Meta isn’t spending billions on AI infrastructure just to make Facebook and Instagram better. The company believes AI can create entirely new businesses,” he added.
Meta expects AI infrastructure spending to reach as much as $145 billion this year, roughly double last year’s investment and representing a significant share of the more than $700 billion Big Tech companies are projected to spend on AI in 2026.
The company also raised the lower end of its 2026 capital expenditure guidance to between $130 billion and $145 billion, up from its previous forecast of $125 billion to $145 billion. Earlier this year, Meta had projected spending of between $115 billion and $135 billion.
Reuters reported earlier this month that Meta plans to double its computing capacity to 7 gigawatts this year and double it again to 14 gigawatts next year. The company currently has 32 data centres operating or under construction worldwide.
Despite the pressure on profitability, Meta delivered strong top-line growth.
Second-quarter revenue rose 28% year-on-year to $60.8 billion, marking its fastest pace of growth since the fourth quarter of 2021, excluding the first quarter of 2026. Daily active users across Meta’s family of apps increased 3% to 3.6 billion, reflecting a rebound in engagement following a dip in April.
Luke Stillman, managing director at research firm Madison and Wall, said the company’s core advertising business remains resilient.
“Meta’s underlying ad business that’s financing everything though is still performing well and is our main focus,” he said.
Beyond its AI spending, Meta continues to face mounting legal and regulatory challenges.
The company disclosed earlier this month that four US states are seeking $1.4 trillion in penalties over allegations that Facebook and Instagram were deliberately designed to addict young users while misleading the public about their safety.
Meta also warned that growing regulatory scrutiny in both the United States and the European Union over youth social media issues could materially affect its business.
Chief Financial Officer Susan Li said the company continued to face significant legal pressure and noted that several youth-related trials are scheduled to take place this year.
“We continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the U.S., which may ultimately result in a material loss,” Li said in the company’s earnings statement.
Li added that second-quarter operating income would have increased 9% year-on-year if not for legal charges and severance costs linked to Meta’s AI-focused restructuring. Instead, operating income declined 8% during the quarter.
The restructuring included layoffs affecting approximately 8,000 employees, or about 10% of Meta’s workforce, as the company reshapes its operations to prioritise artificial intelligence.
Boluwatife Enome
