Meta's free cash flow collapsed to $784 million in the second quarter, down from $8.55 billion a year earlier and roughly a fifteenth of the $12 billion the company has averaged over the previous eight quarters. The stock fell as much as 10% in after-hours trading Wednesday before recovering to a 7% decline, as investors absorbed capital expenditure of $31.1 billion — nearly double year-over-year — and a full-year capex range now guided at $130 billion to $145 billion. Meta's operating cash flow for the quarter came to $31.9 billion, meaning almost every dollar the business generated went straight back into AI infrastructure.
Revenue grew 28% to $60.80 billion, beating the $60.17 billion consensus, but earnings per share of $6.18 missed the $7.22 analysts expected. Next-quarter guidance of $61 billion to $64 billion, or $62.5 billion at the midpoint, came in below the $63.15 billion Wall Street was looking for, with Meta noting a roughly 1% foreign-currency headwind. Daily active people across Facebook, Instagram, WhatsApp and Messenger reached 3.6 billion, just shy of the 3.61 billion estimate.
The core advertising engine is still growing, but earning less per dollar of revenue. Family of Apps operating income fell to $23.4 billion from $25.0 billion a year earlier, and total costs and expenses rose 55% to $42.03 billion. Depreciation and amortization jumped 46% to $6.4 billion as the servers, chips and data centers Meta is buying at a record pace begin to hit the P&L. Operating income fell 8%, net income dropped 14% to $15.85 billion, and Reality Labs posted a $4.6 billion operating loss on $431 million of sales.
Key facts
- 01Meta free cash flow collapsed to $784M in Q2, down from $8.55B a year earlier and far below its $12B eight-quarter average.
- 02Capital expenditure hit $31.1B in the quarter, nearly double year-over-year, against $31.9B of operating cash flow.
- 03Full-year capex guidance was narrowed to $130B–$145B, raising the floor from $125B; $50.9B was spent in the first half.
- 04Q2 revenue rose 28% to $60.80B, but EPS came in at $6.18 vs. $7.22 expected, and next-quarter guidance of $62.5B trailed the $63.15B consensus.
- 05Meta issued $24.9B of long-term debt in the quarter and bought back zero stock, versus $10B in buybacks a year earlier.
The question analysts kept circling on the call was why Meta, unlike Microsoft, Amazon and Alphabet, does not rent its infrastructure out as a cloud business. Microsoft shares rose almost 2% after Wednesday's close on the strength of its own cloud results — a pointed contrast for a company spending like a hyperscaler without hyperscaler revenue offsets.
“We're getting a lot of offers for compute at a significant premium for what we paid for it.”— Mark Zuckerberg, Meta CEO
Mark Zuckerberg confirmed Meta is exploring exactly that, and promised more detail soon, but framed it as secondary to the company's own AI ambitions. He argued the higher-margin business is selling intelligence built on the compute rather than the compute itself, and pointed to an ad system that AI has made 15.7% better at converting, agents that could handle customer messaging for a million businesses, an API for Meta's models, and a personal assistant product that does not yet exist.
Zuckerberg was blunt about the trade-off. He added that Meta expects "a significantly higher margin on selling intelligence rather than selling compute directly," and told analysts "there's only so much that I can say on an earnings call about this." The framing tracks with Meta's recent pitch of itself as an enterprise AI vendor selling APIs, agents and compute, which AI Chat Daily covered earlier this month.
“It would be foolish to basically just sell all of the compute and take a short-term profit.”— Mark Zuckerberg, Meta CEO
The financing model has already shifted to accommodate the buildout. Meta issued $24.9 billion of long-term debt during the quarter and repurchased no stock, after buying back more than $10 billion in the same period a year earlier. CFO Susan Li said the company is deliberately moving toward a greater mix of debt to fund infrastructure projects with long lives and expected passive income. On Tuesday, Meta announced a $14 billion data center venture with BlackRock in El Paso, Texas, adding to a Hyperion project in rural Louisiana that will cost over $50 billion and a $9 billion buildout in Alberta, Canada disclosed earlier in July.
Meta spent $50.9 billion of capex in the first half, leaving $39 billion to $47 billion per quarter for the rest of the year against roughly $32 billion of quarterly operating cash flow. That arithmetic implies Q2 was the last positive free cash flow quarter of 2026. Li declined to give a 2027 number, saying only that Meta expects to remain demand-constrained — more profitable uses for compute than compute to deploy. Excluding $2.4 billion of legal charges and $1.18 billion of severance from the layoffs that began in May, she said operating income would have grown 9% year over year.
AI chief Alexandr Wang, hired in June 2025 as part of a $14.3 billion investment in Scale AI, launched the Muse Spark 1.1 model earlier this month, which he called the company's strongest for agentic and coding work and priced below comparable offerings from OpenAI and Anthropic. Whether that product line and a still-hypothetical personal assistant justify a run-rate approaching $47 billion of capex per quarter is the bet investors are being asked to underwrite.
“My personal bet is that the people who invest in this are going to be rewarded and feel very good over time.”— Mark Zuckerberg, Meta CEO
Skeptics have a straightforward objection: Alphabet's free cash flow turned negative for the first time on record last week for the same reason, and Meta lacks the cloud revenue stream that partially offsets the spend at Microsoft, Amazon and Google. Selling compute to third parties would close that gap fastest, but Zuckerberg has now said publicly he would rather build the higher-margin layer on top — a longer, riskier path that assumes Meta's models and agents win enough share to matter.
The market reaction is a warning shot for every hyperscaler still ramping capex without a matching enterprise revenue stream. Meta is trying to run the OpenAI playbook and the AWS playbook simultaneously while its ad business absorbs the depreciation, and the numbers show what that costs in the near term. If the cloud pivot Zuckerberg hinted at arrives with real customers and real pricing, the free cash flow chart repairs itself. If it stays a side quest, Meta spends the next two years explaining to shareholders why an ad company is issuing $25 billion of debt a quarter to fund infrastructure it will not rent out.
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