Meta Platforms posted strong second-quarter revenue growth, but a sharp drop in free cash flow overshadowed the results as the company spent heavily on artificial intelligence infrastructure.
The Facebook and Instagram parent reported revenue of $60.8 billion for the quarter ended June 30, up 28% from a year earlier.
Daily active people across its family of apps also grew 3% year-on-year to 3.6 billion, showing that user engagement remained strong.
Despite that growth, investors focused on the high cost of Meta’s AI expansion. The company’s free cash flow fell 91% to $784 million, compared with $8.55 billion in the same quarter last year.
The result was Meta’s weakest free cash flow performance since late 2022 and sent its shares down about 10% in extended trading.
The company also raised the lower end of its 2026 capital spending forecast and now expects capital expenditure to reach between $130 billion and $145 billion, up from its previous guidance of $125 billion to $145 billion. Earlier this year, Meta had projected spending of $115 billion to $135 billion.
Speaking during the earnings call, Chief Executive Officer Mark Zuckerberg defended the spending, saying the company is building for long-term growth.
“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 told analysts that Meta believes personal AI agents will become a major consumer business. He added that the company is in a strong position to turn that technology into new products and services, even though the investment is weighing on its finances today.
The scale of Meta’s investment is growing, as the company expects to spend as much as $145 billion on AI infrastructure this year, nearly double last year’s level.
It also plans to double its computing capacity to 7 gigawatts this year before increasing it again to 14 gigawatts next year. Meta currently has 32 data centres either operating or under construction.
The spending comes as Meta works to reduce its dependence on advertising by developing new AI-powered products and services. Even so, advertising is the company’s biggest source of income.
The quarter also fell short of analysts’ expectations on profit. Meta reported earnings per share of $6.18, below the $7.22 forecast compiled by LSEG.
Mike Proulx, a senior executive at research firm Forrester, said investors are beginning to see the financial impact of Meta’s investment strategy.
“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. Meta isn’t spending billions on AI infrastructure just to make Facebook and Instagram better. The company believes AI can create entirely new businesses.”
Luke Stillman, managing director at Madison and Wall, said the company’s advertising business continues to provide a solid foundation.
“Meta’s underlying ad business that’s financing everything though is still performing well and is our main focus.”
Meta is not the only technology company facing challenges from higher AI spending. Microsoft also reported a decline in free cash flow during the June quarter, although strong growth in its cloud business helped reassure investors and lifted its shares after the results.
Beyond the financial impact of AI investment, Meta is still dealing with legal and regulatory challenges.
Earlier this month, the company disclosed in a court filing that four U.S. states are seeking $1.4 trillion in penalties over claims that Facebook and Instagram were designed to addict young users and that the company misled the public about the platforms’ safety.
Meta had already warned in April that regulatory orders in both the United States and the European Union over youth social media issues could affect its business and financial performance. The company repeated that warning in its latest earnings report.
The company is also restructuring its business to support its AI strategy. In May, Meta laid off about 8,000 employees, roughly 10% of its workforce, as part of that effort.
Chief Financial Officer Susan Li said those restructuring costs, together with legal charges, weighed on the company’s operating performance.
“We continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the U.S., which may ultimately result in a material loss.”
Li also said operating income would have increased 9% from a year earlier without legal charges and severance costs. Instead, operating income declined 8% during the quarter.
