Meta Platforms reported a staggering 91% drop in second-quarter free cash flow to $784 million, down from $8.55 billion a year earlier, as the financial burden of its massive artificial intelligence buildout mounts. The cash flow collapse, marking Meta’s lowest level since late 2022 when its Reality Labs division faced heavy scrutiny over $80 billion in cumulative metaverse losses, triggered a 10% drop in after-hours trading and echoed recent cash flow contractions at Alphabet.
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The financial squeeze comes as Meta aggressively ramps up infrastructure spending. The company raised its 2026 capital expenditure forecast to between $130 billion and $145 billion to support plans to double its computing capacity to 7GW this year and 14GW next year across 32 global data centres. Second-quarter earnings per share came in at $6.18, missing Wall Street expectations of $7.22. Addressing analyst scepticism, CEO Mark Zuckerberg defended the outlay, insisting that personal AI agents will become a massive consumer business and that Meta is uniquely positioned to commercialize the technology at scale.
Market analysts noted that Meta’s capital intensity is far harder for Wall Street to celebrate now that costs are directly impacting profitability. While Microsoft saw a 23% cash flow decline, its stock rose 4.4% thanks to surging high-margin cloud revenues. In contrast, Meta remains an almost entirely advertising-driven business funding its portion of Big Tech’s projected $700 billion AI outlay in 2026, creating tension as the company attempts to forge entirely new consumer and enterprise revenue streams.
Despite margin pressure, Meta’s core advertising engine provided a critical bright spot. Second-quarter revenue jumped 28% year-over-year to $60.8 billion, its quickest growth rate since late 2021, supported by strong ad performance across its platforms. User engagement also rebounded following an April dip, with daily active people rising 3% year-over-year to 3.6 billion across Meta’s suite of applications.
However, profitability was severely impacted by internal restructuring and mounting legal costs. Operating income fell 8% year-over-year, though CFO Susan Li noted operating income would have increased 9% were it not for legal charges and severance costs tied to May’s 10% workforce reduction (8,000 employees) to reorient operations around AI.
Compounding financial uncertainty, legal and regulatory risks continue to loom large over Meta’s long-term outlook. Four US states are currently seeking $1.4 trillion in penalties in a high-stakes court filing, alleging Meta intentionally designed Facebook and Instagram to addict young users while misleading the public on safety. With several youth-related trials scheduled for later this year, executive leadership reiterated that regulatory and legal blowback in the US and Europe could significantly impair the company’s future business performance and financial results.
