Meta’s aggressive artificial intelligence buildout consumed almost all the cash it generated after capital spending in the second quarter, pushing free cash flow down 91 percent to $784 million from $8.55 billion a year earlier.
The collapse, Meta’s weakest free-cash-flow result since late 2022, overshadowed a quarter in which revenue jumped 28 percent to $60.8 billion. Shares of the Facebook and Instagram owner fell 10 percent in extended trading as investors confronted the immediate financial cost of Chief Executive Mark Zuckerberg’s push to secure computing capacity.
The reaction followed a similar selloff at Alphabet, which reported its first quarter of negative free cash flow the previous week. Microsoft’s free cash flow also declined 23 percent from a year earlier in its second quarter, but its shares rose 4.4 percent after hours as investors rewarded growth in its high-margin cloud business.
Meta’s earnings were $6.18 a share, below the $7.22 average forecast from analysts surveyed by LSEG. The company’s results also reflected legal expenses and severance costs associated with its restructuring around artificial intelligence.
Cash drain deepens
Zuckerberg said a significant portion of Meta’s computing capacity was being directed toward training artificial intelligence models, strengthening its core services, developing personal agents and other products, and serving large customers.
Analysts repeatedly pressed him during the earnings call to explain Meta’s artificial intelligence strategy and how the company intends to turn its escalating expenditure into revenue. The questions reflected growing concern across the technology industry that costly infrastructure investment is expanding faster than clearly defined returns.
Zuckerberg said personal artificial intelligence agents could become a major consumer business and argued that Meta’s scale would give it several ways to commercialise the technology. His comments reinforced the company’s intention to pursue new products beyond using artificial intelligence solely to improve advertising and engagement across Facebook and Instagram.
Forrester senior executive Mike Proulx said Meta’s spending had become more difficult for investors to celebrate now that the costs were visibly affecting its financial results. He said the company was trying to create entirely new businesses, rather than merely improve its established social-media platforms.
Meta expects artificial intelligence infrastructure spending to reach as much as $145 billion in 2026, roughly twice last year’s level. The outlay forms part of more than $700 billion that major technology companies are projected to spend on artificial intelligence this year.
Read more: Is the AI capex boom just getting started?
Infrastructure plans expand
The company narrowed its annual capital-expenditure forecast to between $130 billion and $145 billion, lifting the lower end from its previous range of $125 billion to $145 billion. In January, Meta had initially forecast spending of $115 billion to $135 billion.
Reuters reported that Meta plans to operate about seven gigawatts of computing capacity in 2026 and 14 gigawatts in 2027. The company has 32 data centres either operating or under construction around the world.
The heavy investment is arriving while Meta continues to absorb losses from its earlier metaverse expansion. Its Reality Labs division has accumulated more than $80 billion in operating losses, a record that has made shareholders especially sensitive to another long-term technology bet with uncertain near-term returns.
Revenue growth nevertheless accelerated to its fastest pace since the fourth quarter of 2021, excluding the first quarter of 2026. Usage across Meta’s applications also recovered after a quarterly decline reported in April.
Daily active people across Meta’s family of applications rose 3 percent to 3.6 billion. The advertising business that funds the company’s spending remained resilient even as the scale of its infrastructure commitments pressured cash generation.
Luke Stillman, managing director at Madison and Wall, said the continued strength of Meta’s advertising business remained the central consideration for his firm because it was financing the company’s broader ambitions.
Legal costs mount
Meta is also confronting a potentially costly youth-safety case. Four US states are seeking $1.4 trillion in penalties, alleging that Facebook and Instagram were intentionally designed to addict young users and that the company misled the public about the platforms’ safety.
The company warned in April that legal and regulatory action in the United States and European Union concerning young users could significantly affect its business. The exposure adds another source of uncertainty as Meta commits unprecedented sums to artificial intelligence infrastructure.
Meta has reorganised its operations around artificial intelligence and in May laid off about 10 percent of its workforce, or roughly 8,000 employees. The restructuring costs weighed on quarterly profitability alongside the legal charges.
Chief Financial Officer Susan Li said second-quarter operating income would have increased 9 percent if legal expenses and severance charges were excluded. Reported operating income instead fell 8 percent from a year earlier.
Li also said the scrutiny surrounding young users and the related trials could produce a material loss. The warning left investors balancing the strength of Meta’s advertising engine against falling free cash flow, expanding capital commitments and legal risks that could add further pressure to its finances.
Earlier investment moves
Meta entered 2026 after a two-year acceleration in infrastructure investment. Its 2024 results showed capital expenditure of $39.23 billion and free cash flow of $52.10 billion, alongside revenue of $164.50 billion. One year later, the company’s 2025 results put capital expenditure at $72.22 billion, while free cash flow fell to $43.59 billion despite revenue rising 22 percent to $200.97 billion. Meta began this year expecting 2026 capital expenditure of $115 billion to $135 billion, saying infrastructure costs and technical hiring would be the largest drivers of expense growth. Operating cash flow rose to $115.80 billion in 2025, but higher investment reduced the cash remaining available.
The spending outlook moved higher after only one quarter. Meta’s first-quarter release raised the 2026 range to $125 billion–$145 billion after the company spent $19.84 billion on capital projects during the period. It generated $12.39 billion in free cash flow and ended March with $81.18 billion in cash, cash equivalents and marketable securities. The second-quarter narrowing to $130 billion–$145 billion therefore marked the second increase to the lower boundary of Meta’s annual forecast, even though the upper limit remained unchanged. First-quarter revenue increased 33 percent to $56.31 billion, preserving strong top-line momentum.
Financing new capacity
Meta is also using partnerships to expand capacity without funding every project alone. In July, it announced an El Paso venture with BlackRock to develop a one-gigawatt data centre expected to begin operating in 2028. The project represents more than $10 billion of Meta investment and about $14 billion in total development costs. BlackRock will fund 80 percent of the venture and Meta 20 percent. Meta will initially occupy the facility under a four-year lease, with four extension options that could stretch the arrangement to 20 years. The financing package includes $12.5 billion of debt tied to the project’s development costs.
The company separately announced plans for its first artificial intelligence-enabled data centre in India. Under the Reliance agreement, Reliance will build the facility and Meta will lease it. The initial capacity is expected to reach 168 megawatts, with an option to expand as demand grows. Meta said it had also signed renewable-energy agreements approaching one gigawatt in India. The facility will be powered with renewable energy and cooled using desalinated seawater. Together, the projects show how Meta is pairing direct spending with joint ventures and leases as it seeks the computing power required for models, agents, advertising tools and new consumer services.
