Meta Platforms released its second quarter earnings on Wednesday. The report showed a steep drop in free cash flow tied to heavy spending on artificial intelligence infrastructure.
Free cash flow fell to $784 million. That is down 91% from $8.55 billion in the same quarter last year.
Meta shares dropped 10% in extended trading following the announcement. Investors reacted to concerns about how quickly the AI spending will pay off.
Spending Keeps Climbing
Meta raised its 2026 capital spending forecast. The company now expects to spend between $130 billion and $145 billion this year.
That is higher than its earlier forecast of $115 billion to $135 billion set at the start of the year. Meta is expected to put as much as $145 billion toward AI infrastructure alone.
The company is also expanding its computing capacity. Meta plans to double its computing power to 7 gigawatts this year and again to 14 gigawatts next year.
CEO Mark Zuckerberg defended the spending on the earnings call. He said the investments are meant to build new AI-driven businesses, not just improve existing products.
"We also expect to grow a large business serving large customers as well," Zuckerberg said.
Core Business Still Growing
Despite the cash flow drop, Meta's main advertising business kept growing. Revenue rose 28% year-over-year to $60.8 billion.
That marks the company's fastest growth rate since the fourth quarter of 2021, aside from the first quarter of 2026. Daily active users across Meta's platforms reached 3.6 billion, up 3% from a year earlier.
Earnings per share came in at $6.18. That was below the average analyst estimate of $7.22, according to LSEG data.
The spending pressure echoes concerns raised about Alphabet last week. Alphabet reported its first-ever quarter of negative free cash flow.
Microsoft also saw a drop in free cash flow during the same period. Its shares rose in after-hours trading after strong cloud growth reassured investors.
Meta's Reality Labs division has already accumulated more than $80 billion in operating losses from its virtual reality push. The new cash flow numbers are reviving memories of that earlier spending spree.
Meta also disclosed legal challenges this month. Four U.S. states are seeking $1.4 trillion in penalties over claims that Facebook and Instagram were designed to encourage addictive use among young people.
Chief Financial Officer Susan Li said legal scrutiny remains high. Several youth-related trials are scheduled in the U.S. this year.
Li said operating income would have increased 9% year-over-year without legal charges and severance costs. Instead, operating income declined 8%.
The company cut about 10% of its workforce, roughly 8,000 employees, in May as part of a restructuring around AI. Those severance costs also weighed on the quarter's results.
Meta's spending is part of a wider trend among major technology companies. Big Tech is expected to invest more than $700 billion in AI infrastructure through 2026.
