Meta Platforms reported a 91% plunge in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant’s costly AI buildout amid an uncertain payoff.
The Facebook and Instagram parent company reported free cash flow of US$784-million in the second quarter ended 30 June, down from $8.55-billion a year earlier, sending its shares down 10% in extended trading.
Meta’s cash flow wipeout echoed Alphabet’s, which last week reported its first-ever cash-flow-negative quarter, stunning even the most bullish of Wall Street investors who sold off the Google owner’s stock.
Meta CEO Mark Zuckerberg said on an earnings call: “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.”
Facing repeated questions from analysts about the company’s AI strategy and how he planned to capitalise on the enormous sums Meta is investing in the technology, Zuckerberg said the spending reflected its bet that personal AI agents would become a huge consumer business.
He argued the company was uniquely positioned to commercialise the technology at scale despite the near-term costs.
Feverish spending
Meta’s free cash flow was the lowest since late 2022, when the company was facing similar investor scrutiny over spending on its ambitious metaverse bet. Its Reality Labs division has posted more than $80-billion in operating losses.
Microsoft reported a 23% drop in free cash flow in the June quarter from a year earlier, but any concerns about its pace of spending were alleviated by surging growth in its high-margin cloud business. The software giant’s shares rose 4.4% in aftermarket trading on Wednesday.
The feverish spending on AI infrastructure comes as Meta, which continues to be an almost entirely advertising-driven business, attempts to diversify its revenue sources.
Read: Meta AI will now tell parents if their teen is in crisis
The company reported second-quarter earnings per share of $6.18, missing analysts’ average estimate of $7.22, according to data compiled by LSEG.
“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,” said Mike Proulx, a senior executive at research firm Forrester. “Meta isn’t spending billions on AI infrastructure just to make Facebook and Instagram better. The company believes AI can create entirely new businesses.”
Meta expects to spend as much as $145-billion on AI infrastructure this year, about double last year’s investment, and a significant portion of Big Tech’s more than $700-billion projected outlay on the technology in 2026.
Meta plans to double overall computing power to 7GW this year and to double it again, to 14GW, next year. It currently has 32 data centres across the globe in operation or under construction.
The company raised the lower end of its capital expenditure outlook on Wednesday. It now expects 2026 capex to be between $130-billion and $145-billion, compared with its prior forecast of $125-billion to $145-billion. At the beginning of the year it had forecast spending between $115-billion and $135-billion.
One bright spot in the results was Meta’s revenue, which jumped 28% to $60.8-billion in the second quarter, the quickest pace of growth since the fourth quarter of 2021, barring the first quarter of 2026. Usage of Meta’s apps rebounded after a quarterly dip in April. The company reported 3.6 billion daily active people, a 3% rise year over year.
Luke Stillman, a managing director at research firm Madison and Wall, said: “Meta’s underlying ad business that’s financing everything though is still performing well and is our main focus.”
While investors are scrutinising Meta’s AI spending, it faces legal risks related to its core business. The company said in a court filing this month that four states were seeking $1.4-trillion in penalties over accusations it designed its Facebook and Instagram platforms to addict young users and misled the public about their safety.
Scrutiny
Meta warned in April that legal and regulatory blowback in the EU and the US over youth social media issues “could significantly impact” its business and financial results. The company said on Wednesday that it continued to see this scrutiny.
It also had severance expenses associated with a sweeping restructuring it has been carrying out to reorientate its inner workings around AI. In May, it laid off about 10% of its workforce, or around 8 000 employees, as part of that overhaul.
Read: Meta could become Anthropic’s landlord in $10-billion deal
On the earnings call, Meta chief financial officer Susan Li said second-quarter operating income would have increased 9% year over year without the company’s legal charges and severance expenses. Operating income actually fell 8%.
“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 US, which may ultimately result in a material loss,” she said in the company’s earnings statement. — Katie Paul and Jaspreet Singh, (c) 2026 NewsCentral Media
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