By Katie Paul and Jaspreet Singh
July 29 (Reuters) – Meta Platforms reported a precipitous 91% drop in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant’s costly AI buildout despite an uncertain payoff.
The Facebook parent company reported free cash flow of $784 million in the second quarter ended June 30, down from $8.55 billion reported a year earlier, sending its shares down 10% in extended trading.
Meta’s cash flow wipeout echoed Alphabet’s, which last week said it was cash flow negative for the first time ever as it spent $5.9 billion in the second quarter. The rate of spending stunned even the most bullish of Wall Street investors, driving Alphabet’s stock down.
Meta’s revenue jumped 28% to $60.8 billion in the quarter, the quickest pace of growth since the fourth quarter of 2021, barring the first quarter of 2026.
“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,” CEO Mark Zuckerberg said on an earnings call.
Meta currently has 32 data centers across the globe in operation or under construction, with 28 of them in the U.S.
The company also raised the lower end of its capital expenditure outlook. It now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the beginning of the year it had forecast capex between $115 billion and $135 billion.
The feverish spending by Big Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year.
“Meta’s report echoes what we saw from Alphabet and Tesla last week: strong revenue growth, but even faster growth in spending. The market is repricing a deteriorating free cash flow outlook, and in an environment of higher capital costs, that does not sit well,” said Thomas Monteiro, senior analyst at Investing.com.
Luke Stillman, a managing director at research firm Madison and Wall, said: “Meta’s underlying ad business that’s financing everything though is still performing well and is our main focus.”
META’S LEGAL TROUBLES
While investors are scrutinizing Meta’s AI spending, it faces legal risks related to its core business. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook and Instagram platforms to addict young users and misled the public about their safety.
Meta had warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues “could significantly impact” its business and financial results.
The company said on Wednesday that it continued to see this scrutiny.
On the call, Meta CFO Susan Li said second-quarter operating income would have increased 9% year over year without the company’s legal charges and severance expenses. Operating income actually fell 8%.
“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,” she said in the company’s earnings statement.
(Reporting by Katie Paul in New York and Jaspreet Singh in Bengaluru; Editing by Shilpi Majumdar and Nia Williams)
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