Meta shares fell 10% on Wednesday after second-quarter costs jumped 55% and free cash flow dropped 91%, leaving investors to judge whether the company's AI infrastructure spending will pay off. Mark Zuckerberg used the earnings call to pitch autonomous AI "agents" and a plan to sell compute and models to other businesses. Google's stock tumbled last week after it reported its lowest ever amount of leftover cash, while Microsoft rose after its own results.
Meta shares fell 10% on Wednesday on weak financial results and rising expenses, as chief executive Mark Zuckerberg defended his costly quest to make the company a leading contender in AI. The group forecast revenues of between $61 billion and $64 billion in the current quarter, with a midpoint below Wall Street expectations of $63.1 billion.
Costs jump 55% as free cash flow drains
Costs and expenses jumped 55% to $42 billion in the second quarter, while sales came in narrowly better than analysts' estimates. Free cash flow in the three months to the end of June dropped by 91% year-on-year to $784 million, down from $8.5 billion, driven by spending on AI infrastructure.
The after-hours drop wiped $150 billion from the company's market capitalization. Revenue for the April-to-June quarter grew 28% from a year ago to $61 billion, according to BBC News. Net income, however, shrank 14% to $15.8 billion, well below analysts' estimates of $18.5 billion.
Zuckerberg pitches AI agents and compute sales
Zuckerberg told analysts that Meta's AI investments are accelerating every major part of its core business, pointing to improvements in its advertising and content recommendation systems. He laid out a vision of sophisticated AI "agents" that would autonomously carry out tasks for users 24/7, and said personal agents would form the foundation of the next wave of Meta products and revenue lines in the months and years ahead.
Meta narrowed its 2026 capital expenditure range to between $130 billion and $145 billion, from the $125 billion to $145 billion it set in April, with second-quarter capital expenditure at about $31 billion. The company is also in early talks to rent its computing power to AI lab Anthropic in a deal that could be worth as much as $10 billion.
Google fell on cash, Microsoft rose on results
Google last week also reported its lowest ever amount of leftover cash, which sent its own stock tumbling. Microsoft, however, bucked a trend of declining tech stocks, with shares rising 5% in after-hours trading after sales for April to June climbed 18% to $90 billion.
Forrester research director Mike Proulx said Meta's AI infrastructure bill is arriving faster than the pay-off: "What it generated in cash this quarter almost all got eaten by AI infrastructure spending".
Sources: Financial Times, BBC News
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