Meta’s $145 Billion AI Bet Backfires as Free Cashflow Craters 91% in Q2

Meta's Q2 revenue jumped 28% to $60.8B, but soaring AI capex and a 91% free-cashflow plunge sent shares down 8%. Net income fell 14% as Zuckerberg doubles down on infrastructure.

The arithmetic of Mark Zuckerberg’s artificial-intelligence ambitions is getting harder to ignore. Meta Platforms posted a 28% jump in second-quarter revenue to $60.8 billion on Wednesday evening, the fastest top-line growth since late 2021, yet investors are punishing the stock for what that growth is costing. Shares slid more than 8% in European trading on Thursday, touching €467.55, as the gap between revenue momentum and earnings reality widened to a chasm.

The culprit is a spending spree of historic proportions. Meta’s capital expenditures hit $31.08 billion in the quarter alone, and management raised the lower end of its full-year 2026 capex guidance to a range of $130 billion to $145 billion, up from a previous floor of $125 billion. The result was a free-cashflow collapse to just $784 million — a 91% plunge from the $8.55 billion recorded a year earlier. For a company that once minted cash with machine-like regularity, the figure landed like a warning shot.

Net income fell 14% year-over-year to $15.85 billion, and earnings per share of $6.18 missed the consensus estimate of roughly $7.22. Total costs surged 55% to $42.03 billion, weighed down by $2.4 billion in legal charges and $1.18 billion in severance payments tied to roughly 8,000 layoffs. The operating margin contracted from 43% to 31%, a compression that analysts at JPMorgan cited as they trimmed their price target to $640 with a neutral rating.

Zuckerberg, however, is not blinking. He defended the spending during the earnings call, describing computing capacity as a scarce strategic asset that Meta must own rather than rent. The company is already exploring ways to monetize that asset, including a potential cloud-services business that would lease AI compute power to external customers. Media reports suggest Meta has held talks with rival AI lab Anthropic about a deal that could be worth roughly $10 billion, though no agreement has been confirmed.

The advertising engine that funds all of this remains in fine fettle. Ad revenue rose 27% to $59.36 billion, driven by a 14% increase in impressions and a 12% gain in average price per ad. Daily active people across Meta’s family of apps grew 3% to 3.6 billion, with Instagram hitting 2 billion daily users and Threads reaching 500 million monthly actives. Zuckerberg argued that AI tools are already improving ad-targeting effectiveness and that the infrastructure buildout will eventually serve billions of users with personalized AI assistants.

Not every part of the empire is pulling its weight. Reality Labs, the division responsible for virtual-reality hardware and the broader metaverse push, posted an operating loss of $4.62 billion on revenue of just $431 million. Cumulative losses for the unit have now exceeded $80 billion since late 2020. Legal overhang adds another layer of uncertainty: several US states are seeking billions in penalties related to lawsuits alleging that Meta’s platforms pose addiction risks to teenagers.

Analysts are split on how to read the quarter. Guggenheim maintained a buy recommendation but slashed its price target from $800 to $700, acknowledging that near-term profitability will remain under pressure. The broader market appears to share that caution. Meta’s stock has now fallen 15.32% since the start of the year and sits 31% below its 52-week high.

For the third quarter, Meta guided revenue in a range of $61 billion to $64 billion, a forecast that landed on the conservative side of expectations. Whether that caution reflects genuine uncertainty or a deliberate effort to reset the bar, it did little to calm nerves on a day when the numbers told a story of a company spending heavily today for a payoff that remains stubbornly out of reach.