Meta shares slide as 91% free cash flow collapse overshadows record $60.8bn revenue

Meta Platforms reported record second-quarter revenue of $60.8 billion on Wednesday, a 28% jump from a year earlier, but a 14% drop in net income to $15.8 billion and a dramatic 91% collapse in free cash flow sent its stock tumbling in extended trading.

The numbers that spooked investors

Revenue beat analyst estimates of $60.2 billion, powered by a 14% increase in ad impressions across Meta's family of apps and a 12% rise in the average price per ad. But net income fell well short of the $18.5 billion Wall Street had expected, according to Bloomberg consensus data cited by multiple outlets. Earnings per share came in at $6.18, missing forecasts of $7.14 to $7.22. The company also projected third-quarter revenue between $61 billion and $64 billion, with the midpoint below analysts' estimates of $63.1 billion.

The starkest figure was free cash flow: it plunged to $784 million, down from $8.55 billion in the same quarter a year earlier. Meta spent roughly $31 billion on capital projects in the quarter alone as it builds a fleet of gigawatt-scale data centers across the U.S., including a 5 GW campus in rural Louisiana and a new $14 billion venture with BlackRock in El Paso, Texas. Operating margin contracted sharply to 31%, from 43% a year ago.

The AI spending trajectory

Meta narrowed its full-year 2026 capital expenditure forecast to between $130 billion and $145 billion, raising the lower end from a prior range of $125 billion to $145 billion set in April. That compares with $72.2 billion in total capex for 2025, meaning the bill is roughly doubling year on year. Total expenses for 2026 are now forecast at $165 billion to $169 billion, up from $162 billion to $169 billion previously, with the increase attributed partly to $2.4 billion in charges related to legal proceedings recognized in the second quarter.

AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities.

Zuckerberg used a Wall Street Journal op-ed published Tuesday to frame his AI optimism, arguing that distributing powerful AI tools widely would benefit society. "As a thought experiment, imagine only one person had a super-intelligent lawyer," he wrote. "He would have an unfair advantage in court. That would lead to a worse society. But now imagine everyone has a super-intelligent lawyer."

On the earnings call, the CEO said the company planned to start selling AI models and computing tools to other businesses, calling it a "very, very large opportunity." He described AI agents as "the next wave of our product line in the months and years to come" and added: "Soon, we'll have agents that can work 24/7 on your behalf."

Legal costs and layoffs

Two one-off charges deepened the profit drop. Meta booked $2.4 billion tied to legal proceedings, and chief financial officer Susan Li warned that youth-related trials in the U.S. this year "may ultimately result in a material loss." A further $1.18 billion in severance costs stemmed from the May 2026 layoff of about 8,000 employees amid a companywide shift to prioritize AI. Reality Labs, the unit housing Meta's headset and smart-glasses ambitions, lost another $4.6 billion during the quarter, pushing its cumulative losses past $80 billion.

No cloud business to monetize the buildout

Unlike Microsoft and Alphabet, Meta lacks a cloud-computing division that can rent AI infrastructure back to customers, leaving investors to absorb the cost without an obvious new revenue line. Alphabet reported its first ever negative free cash flow last week, and the broader Big Tech sector is expected to spend well above $700 billion on AI this year, with Morgan Stanley estimating more than $1 trillion next year. Meta has reportedly been in talks to lease computing power to Anthropic in a deal worth up to $10 billion over two years, and its Muse Spark AI model is being positioned as a tool for enterprise customers.

Market reaction and the Fed backdrop

The results landed on a day when new Federal Reserve chief Kevin Warsh spooked markets by saying he would not hesitate to raise interest rates if inflation stayed above the 2% target. The Dow Jones Industrial Average fell over 1,000 points in its worst trading day of the year. Meta shares dropped between 5% and 11% in after-hours trading, depending on the time of reporting, adding to a year-over-year decline of roughly 10%.