Meta Platforms’ shares fell nearly 10% in extended trading on Wednesday after the social media giant issued weaker-than-expected revenue guidance and revealed that its aggressive artificial intelligence spending sharply eroded free cash flow, reinforcing investor concerns over the mounting cost of the industry’s AI arms race.
Although Meta exceeded Wall Street’s revenue expectations for the second quarter, investors focused on slowing user growth, a sharp decline in profitability and another substantial increase in capital expenditure as Chief Executive Mark Zuckerberg doubles down on building AI infrastructure.
The results add to a broader trend among technology giants, with Alphabet recently reporting negative free cash flow for the first time as a public company and Microsoft continuing to invest tens of billions of dollars in data centers to support AI demand. Together, the earnings underscore a growing divide between companies that are rapidly monetizing AI through cloud services and those still investing heavily ahead of future returns.
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Meta reported earnings per share of $6.18, well below analysts’ expectations of $7.22, while revenue rose to $60.8 billion, narrowly beating the consensus estimate of $60.17 billion.
However, the company forecast third-quarter revenue of between $61 billion and $64 billion, implying a midpoint of $62.5 billion that fell short of analysts’ expectations of $63.15 billion. Meta said foreign exchange movements are expected to reduce year-over-year revenue growth by about one percentage point.
The company also reported 3.6 billion daily active users across its family of apps, slightly below Wall Street estimates of 3.61 billion, suggesting that user growth is becoming increasingly difficult to sustain at Meta’s massive global scale.
AI Spending Weighs on Financial Performance
The biggest concern for investors was the financial impact of Meta’s accelerating AI investment. Free cash flow collapsed to just $784 million during the quarter from $8.55 billion a year earlier, reflecting an unprecedented level of spending on data centers, computing infrastructure and next-generation AI models.
Meta also raised the lower end of its 2026 capital expenditure forecast, narrowing its expected spending range to between $130 billion and $145 billion, compared with previous guidance of $125 billion to $145 billion.
The revised outlook confirms that Meta remains among the world’s largest investors in AI infrastructure as it races against rivals including OpenAI, Microsoft, Alphabet, Amazon and Anthropic.
Unlike Microsoft, Amazon and Alphabet, which generate substantial cloud-computing revenue that helps offset infrastructure costs, Meta has traditionally relied almost entirely on advertising revenue. That has heightened investor scrutiny over whether the company’s AI investments can produce meaningful returns quickly enough.
Zuckerberg Bets on AI Services Beyond Advertising
Management sought to reassure investors that Meta’s AI infrastructure will ultimately support multiple revenue streams beyond its core advertising business.
“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,” Zuckerberg said during the earnings call.
“But we also expect to grow a large business serving large customers as well.”
This suggests Meta intends to commercialize excess computing capacity by leasing it to enterprise customers, potentially creating a cloud-style business that could diversify the company’s revenue base over time.
Zuckerberg noted that demand for computing resources has already exceeded expectations.
“We’re getting a lot of offers for compute at a significant premium over what we paid for it,” he said.
That strategy would represent a significant shift for Meta, whose AI investments have historically focused on improving advertising efficiency and consumer products rather than selling computing infrastructure.
The earnings report follows several major AI announcements that highlight the scale of Meta’s long-term ambitions. Earlier this month, the company introduced its Muse Spark 1.1 model, which AI chief Alexandr Wang described as the company’s strongest model yet for coding and autonomous AI agents while offering lower costs than competing models from OpenAI and Anthropic.
Meta has accelerated its AI push since hiring Wang in 2025 as part of a $14.3 billion investment in Scale AI.
Infrastructure spending has expanded alongside those ambitions.
This week, Meta announced a partnership with BlackRock to develop a $14 billion AI data center in El Paso, Texas. That project follows plans disclosed earlier this month for a data center in Alberta, Canada, valued at approximately $9 billion, and the company’s Hyperion AI campus in Louisiana, whose expected cost exceeds $50 billion.
The projects illustrate how hyperscalers are committing hundreds of billions of dollars to AI infrastructure in anticipation of sustained demand for advanced computing.
Expenses Surge As Profitability Weakens
Meta’s total costs and expenses jumped 55% year over year to $42.03 billion. The increase included $2.4 billion in legal charges and $1.18 billion in severance costs related to workforce reductions that began earlier this year.
Chief Financial Officer Susan Li said operating income would have increased 9% excluding those one-time items, suggesting the underlying business remained resilient.
Even so, net income declined to $15.85 billion from $18.34 billion a year earlier, reflecting the combined impact of higher spending and special charges.
Meta’s Reality Labs division, which develops virtual reality headsets, smart glasses and other next-generation computing platforms, continued to generate significant losses. The unit posted an operating loss of $4.6 billion while generating $431 million in revenue.
Although those losses remain substantial, they were modestly better than analysts had expected. Wall Street had forecast a loss of approximately $5.07 billion on revenue of $423.4 million.
For much of the past two years, investors rewarded companies for announcing increasingly ambitious AI investments. More recently, attention has shifted toward whether those investments can generate sufficient earnings growth to justify unprecedented capital spending.
Meta’s latest results suggest that question is becoming more pressing. Revenue continues to grow, advertising remains resilient, and AI engagement is improving across the company’s platforms. Yet soaring infrastructure costs, shrinking free cash flow and a softer-than-expected revenue outlook indicate that the financial benefits of Meta’s AI strategy are still lagging behind the scale of its investment.