The Facebook parent company reported free cash flow of $784 million for the quarter ended June 30, a sharp 91% decline from the $8.55 billion recorded during the same period a year earlier. The disappointing figure triggered a sell-off in after-hours trading, with Meta shares falling about 10%.
The decline reflects a broader trend among major technology companies racing to build AI infrastructure. Alphabet recently reported a similar strain, revealing that its cash flow turned negative for the first time after allocating billions of dollars toward artificial intelligence development. The aggressive spending has raised concerns on Wall Street that technology giants may be investing faster than they can generate returns.
Despite the pressure on cash generation, Meta’s core business continued to show strength. The company recorded quarterly revenue of $60.8 billion, representing a 28% increase compared with the previous year and marking its fastest growth rate since the fourth quarter of 2021, excluding the first quarter of 2026.
Zuckerberg Defends Heavy AI Spending as Meta Expands Infrastructure
Meta CEO Mark Zuckerberg said the company’s massive investment in computing capacity is aimed at supporting several areas of future growth, including AI model development, consumer products and enterprise services.
“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 during the company’s earnings call.
The company currently operates or is building 32 data centers worldwide, with 28 located in the United States. These facilities are expected to provide the computing power needed to support Meta’s growing AI ambitions.
Meta also increased the lower end of its capital expenditure forecast for 2026. The company now expects to spend between $130 billion and $145 billion on capital projects, compared with its earlier estimate of $125 billion to $145 billion. Earlier in the year, Meta had projected spending between $115 billion and $135 billion.
The increase reflects the wider technology industry’s race to secure chips, data centers and computing resources needed for artificial intelligence. Analysts expect major technology firms to spend hundreds of billions of dollars on AI infrastructure, with some estimates suggesting industry-wide spending could exceed $700 billion this year and surpass $1 trillion next year.
Investors Question Whether AI Spending Will Deliver Returns
The market reaction showed that investors are becoming more cautious about the pace of AI investment and its impact on profitability.
“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.
However, some analysts pointed to the strength of Meta’s advertising business, which continues to provide the financial foundation for the company’s AI expansion.
“Meta’s underlying ad business that’s financing everything though is still performing well and is our main focus,” said Luke Stillman, a managing director at research firm Madison and Wall.
Legal Challenges Add Pressure to Meta’s Business
Beyond its AI spending commitments, Meta is also dealing with significant legal challenges connected to its social media platforms.
The company disclosed in a court filing this month that four states are seeking $1.4 trillion in penalties over allegations that Facebook and Instagram were designed to encourage addictive use among young people and that Meta misled the public about platform safety.
Meta previously warned that regulatory and legal actions in the United States and European Union concerning youth safety issues could have a major impact on its business and financial performance.
During Wednesday’s earnings discussion, Meta Chief Financial Officer Susan Li said the company continues to face regulatory scrutiny in multiple markets.
She noted that Meta’s second-quarter operating income would have increased by 9% year over year without legal expenses and severance costs. Instead, reported operating income declined by 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,” Li said in the company’s earnings statement.
As Meta continues its aggressive AI transformation, investors are weighing whether the company’s massive infrastructure spending will create a new growth engine or place prolonged pressure on profitability.