Meta Platforms (META -9.19%) shares dropped as much as 10.4% on Wednesday following the company's Q2 2026 earnings report. Revenue beat expectations, but investors focused on shrinking profits and a challenging cash flow picture.
NASDAQ: META
Key Data Points
Big revenue, bigger expenses
The Instagram and Facebook parent posted $60.8 billion of Q2 revenue, a 28% year-over-year increase and near the top of management's guidance. The ad business remains strong, with impressions up 14% and average price per ad up 12%.
But earnings fell 13% to $6.18 per share. Free cash flow was just $784 million, down from $12.4 billion in the previous quarter and $8.5 billion in Q2 2025.
The culprit, of course, was massive spending on data centers. Meta posted $31 billion of capital expenditures in a single quarter. For context, fellow Magnificent 7 member Apple (AAPL -1.84%) doesn't spend even half as much on capex in a full year. Then again, Apple isn't building "personal superintelligence" for 3.6 billion people.
Image source: The Motley Fool.
When does Zuckerberg's AI spending pay off?
CEO Mark Zuckerberg used the earnings call to sketch out Meta's AI future. Personal AI agents will work 24/7 on your behalf, business agents can handle customer service, and AI will drive back-end stuff like enterprise APIs and coding tools.
Meta is building agents to address these opportunities, and Zuckerberg plans to sell AI compute directly to other companies one of these days. That's what all the capex spending is for.
On the earnings call, Zuckerberg said that Meta is getting offers to buy its compute capacity "at a significant premium." The business agents already have 1 million businesses using them weekly. The new Muse Spark model is getting developer traction.
But Meta investors have heard ambitious visions before. The Reality Labs division, home of the metaverse bet, lost another $4.6 billion this quarter. Smart glasses are selling well, but VR headset sales are down.
If the infrastructure spending continues to rise (full-year capex guidance now centers around $138 billion, up from $135 billion), free cash flows could soon turn negative. Meta has the balance sheet to absorb this for now, with over $90 billion in cash and marketable securities.
Wall Street is asking Meta one simple question: When will all this spending start to pay off?
