Key facts
- Meta's free cash flow dropped 91% to $784 million in Q2 2026.
- Capital expenditures for AI infrastructure surged 83% to $31.08 billion.
- Advertising revenue increased by 27%, driven by AI improvements.
- The company anticipates capital expenditures of up to $145 billion this year.
- Meta's stock declined nearly 10% in after-hours trading.
Meta Platforms is significantly increasing its investment in artificial intelligence infrastructure, leading to a substantial decrease in its free cash flow. The company reported a 91% year-over-year drop in free cash flow to $784 million for the second quarter of 2026, a sharp contrast to the over $12 billion it posted the previous quarter. This decline is attributed to a massive surge in capital expenditures, which rose 83% to $31.08 billion, primarily for servers, data centers, and networking equipment powering its AI systems.
Despite the heavy spending, Meta's AI investments are showing returns. The company noted that AI is enhancing its content recommendation and ad-matching capabilities, contributing to a 27% increase in advertising revenue. This strategic shift follows a period where Meta was perceived to be lagging behind competitors like OpenAI and Google in AI model development. In response, CEO Mark Zuckerberg restructured the company's AI operations under Meta Superintelligence Labs, which has released new models like Muse Spark and Muse Image.
Meta is investing not only in current AI applications but also in future advancements, including larger models, personal agents, business tools, and a potential enterprise computing division. The company anticipates its capital expenditures could reach as high as $145 billion this year. Zuckerberg acknowledged a lead time for these investments, stating that value will only be realized once the data centers are fully operational. CFO Susan Li emphasized that Meta's strong operating cash flow provides a solid foundation for this infrastructure buildout, even with minimal remaining free cash flow after capital spending.
The substantial investment by Meta places it among other Big Tech giants collectively pouring over $700 billion into AI infrastructure this year. While Google recently experienced negative free cash flow for the first time in decades, Microsoft saw its shares rise after maintaining its spending plan. Meta's stock, however, fell nearly 10% in after-hours trading following the earnings report, suggesting that Wall Street may be rewarding more restrained spending strategies.