Meta reported second-quarter earnings per share of $6.18 Wednesday, missing Wall Street forecasts of $7.17 to $7.22 by roughly 13 percent, as the company’s massive artificial intelligence spending continues to weigh on profit margins despite strong revenue growth.
The social media giant’s revenue jumped 28 percent to $60.8 billion, beating expectations, but the earnings miss sent shares down 5 to 12 percent in after-hours trading and extended a 10-day losing streak that has wiped nearly 20 percent from the stock year-to-date.
The most striking blow came from 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 could replenish it.
The company raised the lower end of its full-year 2026 capital expenditure guidance to $130 billion from $125 billion, narrowing the range to $130 billion to $145 billion. This spending funds data centers that train and operate AI models powering Meta’s core apps and internal AI services—roughly double the $72 billion the company spent on capital projects in all of 2025.
Chief Executive Mark Zuckerberg defended the spending in a prepared statement, saying “AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities.” 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.
Operating margin fell to 31 percent from 43 percent a year earlier, and total costs surged 55 percent. The company also 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. 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.
The Broader Tech Capex Reckoning
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.
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.
Mike Proulx, a senior executive at research firm Forrester, told Reuters: “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.” He noted that Meta isn’t spending billions on AI infrastructure just to make Facebook and Instagram better, arguing the company believes AI can create entirely new businesses.
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. When other companies have missed guidance despite earnings beats, investors have similarly punished the stock, reflecting broader skepticism about whether AI infrastructure spending by major tech companies will ever generate sufficient returns to justify the enormous capital outlays.
Sources
- Reuters — Meta Q2 free cash flow fell 91% to $784 million; EPS of $6.18 vs. $7.22 forecast; capex guidance raised to $130–$145 billion; comparison to Alphabet’s negative cash flow and cloud monetization advantage; Forrester analyst commentary.
- ECIKS.org — Meta Q2 earnings detail: $6.18 EPS vs. $7.17 forecast; $60.8 billion revenue; $31 billion capex in quarter; 91% free cash flow decline; operating margin compression; legal charges and severance expenses.
- Investopedia / Bloomberg — Stock price movement: down 5–12% in after-hours; 10-day losing streak; down ~20% year-to-date as of July 30, 2026.
- Business Insider / CNBC — Alphabet’s Q2 2026 negative free cash flow of $5.9 billion; capex doubled to $44.9 billion; 2026 guidance raised to $195–$205 billion.
