Meta reported second-quarter earnings of $6.18 per share, missing Wall Street forecasts of $7.17 by nearly 14 percent, as the company’s massive artificial intelligence spending continues to weigh on profit margins. The social media giant’s revenue rose 28 percent to $60.8 billion, beating expectations, but earnings declined 13 percent year-over-year, underscoring a widening gap between top-line growth and bottom-line returns.
The most striking impact of Meta’s AI buildout appeared in free cash flow, which collapsed 91 percent to just $784 million in the June quarter from $8.55 billion a year earlier. Meta spent approximately $31 billion on capital projects in the quarter alone, draining cash faster than advertising revenue can replenish it.
Meta narrowed its full-year 2026 capital expenditure guidance to a range of $130 billion to $145 billion, with a higher midpoint than its prior forecast of $125 billion to $145 billion. This spending funds data centers that train and operate AI models powering Meta’s core apps and internal AI services. The company spent $72 billion on capital projects in all of 2025, meaning 2026 spending is roughly doubling.
Chief Executive Mark Zuckerberg defended the spending in a prepared statement: “AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities. The results are already showing, and I’m optimistic about the potential ahead.” Meta’s advertising business did show strength, with impression volumes up 14 percent and price per ad up 12 percent, suggesting AI-powered ad targeting is improving returns for advertisers.
Yet investors remained unconvinced. Meta stock fell roughly 5 to 12 percent in after-hours trading following the report, extending a 10-day losing streak that has wiped 13 percent from the stock since July 15. The sell-off reflects broader skepticism about whether AI spending by major tech companies will ever generate sufficient returns to justify the enormous capital outlays.
Meta is not alone in this predicament. Alphabet reported negative free cash flow for the first time in company history just days earlier, posting a $5.9 billion cash burn in the second quarter as capital expenditures doubled to $44.9 billion. Alphabet guided to $195 billion to $205 billion in full-year 2026 capex, up from prior guidance of $180 billion to $190 billion. Amazon’s long-term debt shot up 81 percent in the first half of 2026, and Microsoft is forecast by analysts to post negative free cash flow in the fourth quarter for the first time since 2001.
The difference between Meta and its rivals is structural. Microsoft and Alphabet can point to fast-growing cloud businesses that rent AI capacity to customers, offsetting their own spending with new revenue streams. Meta has no such cloud business; its AI spending funds only its own apps and models, leaving investors to see the cost without an obvious new revenue line. Meta reported Thursday alongside Microsoft and other major earnings, but the market’s reaction to its profit miss and cash-flow warning contrasted sharply with investor reception to cloud-driven results elsewhere.
Meta also faced one-time charges that deepened the profit decline. The company booked $2.4 billion in charges tied to legal proceedings and $1.18 billion in severance from a May layoff of approximately 8,000 staff. Operating margin fell to 31 percent from 43 percent a year earlier. Meta’s finance chief warned of additional youth-related trials in the U.S. this year that “may ultimately result in a material loss,” adding to legal cost uncertainty. Reality Labs, Meta’s headset and glasses division, posted another $4.6 billion loss, bringing its cumulative deficit past $80 billion.
For now, Meta remains cash-generative overall, unlike Alphabet. But the trajectory is clear: as AI spending accelerates and revenue growth decelerates, the company’s ability to fund both capital projects and shareholder returns is tightening. This week’s earnings calendar peaked with Meta, Microsoft, and Apple reporting, but Meta’s results suggest that even strong advertising growth may not be enough to offset the scale of AI infrastructure investment required to stay competitive in the AI race.
Sources
- Investor’s Business Daily — Meta Q2 earnings of $6.18 per share vs. $7.19 forecast; revenue of $60.8 billion; capex guidance narrowed to $130-$145 billion.
- The Next Web — Free cash flow fell 91% to $784 million; profit declined 14%; $31 billion capex in the quarter; comparison to Microsoft and Alphabet’s cloud monetization advantage.
- CNBC — Broader hyperscaler capex scrutiny; Alphabet’s negative free cash flow precedent; analyst commentary on investor skepticism; Amazon and Microsoft capex forecasts.
