Meta is spending more money than ever to build its artificial intelligence (AI) future, and that heavy investment is now starting to show in its financial results.
The Facebook and Instagram parent posted a steep decline in free cash flow for the second quarter, adding to concerns over whether its multibillion-dollar AI bet will deliver the returns investors are hoping for. Although the company’s advertising business continued to bring in strong revenue, the soaring costs worried investors, pushing Meta’s shares down 10% in after-hours trading.
Free cash flow drops 91% as AI spending rises
Meta said its free cash flow for the quarter ended June 30 stood at just $784 million, a huge 91% drop from $8.55 billion during the same period last year. The steep decline shows how much money the company is pouring into AI infrastructure, including data centers and computing power needed to train advanced AI models.
The weak cash flow result immediately worried investors, and Meta‘s stock fell about 10% in extended trading after the earnings announcement.
The situation also mirrors what happened to Alphabet, Google’s parent company, which last week shocked Wall Street after reporting its first-ever quarter with negative free cash flow as AI investments surged.
Zuckerberg says Meta is betting big on personal AI agents
During the earnings call, Meta CEO Mark Zuckerberg defended the company’s spending, saying AI remains the biggest opportunity for the company.
“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,” Zuckerberg said.
Analysts repeatedly questioned him about Meta’s AI strategy and how the company plans to earn back the enormous amount of money it is investing.
In response, Zuckerberg said Meta believes personal AI assistants will become a major business in the future. He argued that although the investments are expensive today, Meta is in a strong position to turn AI into a profitable business on a global scale.
Lowest cash flow since Meta’s metaverse spending days
Meta’s free cash flow has now fallen to its lowest level since late 2022, when investors were also worried about the company’s massive spending on the metaverse.
Its Reality Labs division, which develops virtual and augmented reality products, has already recorded more than $80 billion in operating losses, making investors cautious about another costly long-term bet.
Microsoft also reported lower free cash flow, down 23% from a year ago during the June quarter.
However, investors were far less concerned because Microsoft’s cloud business continued to grow rapidly and generate strong profits. As a result, Microsoft’s shares rose 4.4% in after-hours trading.
Meta misses earnings expectations
Meta reported earnings per share (EPS) of $6.18, which was below analysts’ average estimate of $7.22, according to data compiled by LSEG.
Mike Proulx, a senior executive at research firm Forrester, said the rising costs are becoming difficult for investors to ignore.
“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 said.
He added, “Meta isn’t spending billions on AI infrastructure just to make Facebook and Instagram better. The company believes AI can create entirely new businesses.”
AI investment continues to climb
Meta has no plans to slow down. The company expects to spend as much as $145 billion on AI infrastructure this year, roughly double what it invested last year. That amount also represents a significant share of the more than $700 billion that Big Tech companies are expected to spend on AI in 2026.
Reuters reported earlier this month that Meta plans to double its total computing capacity to 7 gigawatts this year and then double it again to 14 gigawatts next year.
The company currently has 32 data centres operating or under construction around the world.
Meta also increased the lower end of its capital spending forecast. It now expects 2026 capital expenditure to range between $130 billion and $145 billion, compared with its earlier forecast of $125 billion to $145 billion. At the start of the year, it had expected spending of $115 billion to $135 billion.
Advertising business remains Meta’s biggest strength
Despite concerns over AI spending, Meta’s core advertising business continued to perform strongly.
The company reported revenue of $60.8 billion for the second quarter, up 28% from a year ago. This marked its fastest pace of revenue growth since the fourth quarter of 2021, excluding the first quarter of 2026.
User activity also improved after dipping in April. Meta said its family of apps, including Facebook, Instagram, WhatsApp and Messenger, now has 3.6 billion daily active users, up 3% compared with last year.
Luke Stillman, managing director at research firm Madison and Wall, said the advertising business remains the company’s biggest advantage.
“Meta’s underlying ad business that’s financing everything, though, is still performing well and is our main focus,” he said.
Legal troubles continue to grow
Alongside its AI spending, Meta is also dealing with mounting legal challenges.
In a court filing earlier this month, the company said four U.S. states are seeking $1.4 trillion in penalties, accusing Meta of designing Facebook and Instagram in ways that make young users addicted and misleading the public about the platforms’ safety.
Back in April, Meta had already warned that increasing legal and regulatory pressure in both the United States and the European Union over youth social media issues could significantly affect its business and financial performance.
On Wednesday, the company said that scrutiny has continued.
AI ambitions remain high despite investor concerns
Meta’s latest earnings show a company that is making one of the biggest AI bets in the technology industry.
Its advertising business is still generating strong revenue and helping fund those investments. But the sharp fall in cash flow, weaker-than-expected earnings, rising legal risks and continued heavy spending have made investors more cautious about how long it will take for Meta’s AI strategy to pay off.