Meta Shares Plunge 11% After Earnings Miss: AI Spending Concerns Mount in US
Meta shares plunged 11% after earnings miss as investors balked at the company’s promise to keep spending on artificial intelligence projects while profits dwindle, with free cash flow hitting its lowest level in 5 years. The social media giant reported revenue of $61 billion, up 28% from a year ago, but earnings per share of $6.18 missed Wall Street estimates by $1.04. Meta lifted its AI capex forecast to $130-145 billion, up from $125 billion just three months ago. The earnings miss marks a stark contrast to Microsoft’s strong results, highlighting the divergent paths US tech giants are taking in the AI race.
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Meta Earnings Breakdown
Meta reported second-quarter results that disappointed investors on multiple fronts. The company’s revenue growth remained strong at 28%, but profitability metrics fell short of expectations.
| Metric | Actual | Estimate | Result |
|---|---|---|---|
| Revenue | $61B | $60.4B | Beat ✅ |
| EPS | $6.18 | $7.14 | Missed ❌ |
| Free Cash Flow | $784M | $4B+ | Lowest in 5 years ❌ |
| AI Capex Forecast | $130-145B | $125-145B | Raised ⚠️ |
| Daily Active Users | 3.2B | 3.15B | Beat ✅ |
| Ad Impressions | +22% | +18% | Beat ✅ |
| Average Price per Ad | +5% | +8% | Missed ❌ |
The company said it would spend $130 billion to $145 billion this year, mostly on AI, up from the $125 billion it said it planned to spend just three months ago. This represents a massive increase in capital expenditure that has concerned investors.
AI Spending Raised to $130-145B
Meta’s AI spending plans have escalated dramatically, raising concerns about return on investment. The company is building massive data centers and purchasing millions of AI chips to compete with OpenAI, Google, and Anthropic.
“What it generated in cash this quarter almost all got eaten by AI infrastructure spending,” analyst Mike Proulx at Forrester said. “Investors now have to decide whether Meta’s growing list of AI initiatives represents company diversification or distraction.”
The increased spending includes:
- $50B+ for Nvidia GPUs and custom AI chips
- $30B for data center construction and expansion
- $20B for AI research and talent acquisition
- $15B for AI software development and deployment
- $10B for other AI-related infrastructure
Meta’s AI spending now exceeds the GDP of many countries, making it one of the largest technology investments in history. The scale of the investment has raised questions about whether the company can generate adequate returns.
Free Cash Flow Crisis
Meta’s free cash flow for the quarter was $784 million, the lowest level in at least five years. This represents a dramatic decline from the $10+ billion quarterly free cash flow Meta was generating just two years ago.
The cash flow deterioration reflects the massive capital expenditure required to build AI infrastructure. Meta is spending billions on Nvidia GPUs, custom AI chips, and data center construction to compete in the AI race.
| Free Cash Flow Trend | Q2 2024 | Q2 2025 | Q2 2026 |
|---|---|---|---|
| Free Cash Flow | $10.2B | $5.4B | $784M |
| Capex | $6.5B | $8.8B | $12.3B |
| AI Investment | $2B | $5B | $10B+ |
The decline in free cash flow has forced Meta to tap into its cash reserves and raise debt to fund its AI ambitions. The company’s balance sheet remains strong, but the trajectory has concerned investors.
Zuckerberg’s Defense
CEO Mark Zuckerberg defended the spending, saying AI is “accelerating every part of our core business” and that the company plans to start selling AI technology to other companies.
“I get that this is a big bet across the industry,” Zuckerberg said. “My personal bet is people who invest in this will feel very good and be rewarded over time.”
Meta announced plans to sell its Muse Spark AI model to enterprises, creating a new revenue stream to help justify the massive infrastructure investment. The company also revealed plans for AI-powered advertising tools that could boost ad performance.
Analyst Reaction
Analysts expressed concern about Meta’s ability to generate returns on its AI investment:
- Forrester: “Investors must decide if AI initiatives represent diversification or distraction”
- Bloomberg Intelligence: “Cash flow deterioration raises questions about AI monetization timeline”
- Morgan Stanley: “Revenue growth strong but profitability under pressure”
- Goldman Sachs: “Meta needs to show clearer path to AI ROI”
- JP Morgan: “Ad business remains strong but AI spending overshadows growth”
The consensus among analysts is that Meta needs to demonstrate tangible returns on its AI investments within the next 4-6 quarters. Without clear evidence of monetization, the stock may continue to face pressure.
Microsoft Comparison
In contrast, Microsoft shares jumped 16% after reporting strong Azure growth of 43%. Microsoft’s cloud revenue surpassed $100 billion for the first time, demonstrating that AI spending can translate into tangible returns.
| Company | AI Capex | Revenue Growth | Stock Reaction |
|---|---|---|---|
| Microsoft | $175B | +18% | +16% |
| Meta | $130-145B | +28% | -11% |
The difference highlights that Wall Street is willing to tolerate massive AI spending when it produces clear revenue growth, as with Microsoft’s Azure business, but punishes companies like Meta where returns remain unclear.
Advertising Business
Despite the earnings miss, Meta’s core advertising business showed resilience. Daily active users reached 3.2 billion, up 7% year-over-year, while ad impressions increased 22%.
However, the average price per ad only increased 5%, below expectations of 8%. This suggests that while Meta is serving more ads, it struggles to command premium pricing in a competitive digital advertising market.
The advertising industry faces headwinds from economic uncertainty and increased competition from TikTok, YouTube, and emerging platforms. Meta’s ability to maintain ad pricing power will be critical to funding its AI ambitions.
Frequently Asked Questions
Why did Meta shares fall 11%? Meta reported earnings per share of $6.18, missing estimates by $1.04. Free cash flow hit its lowest level in 5 years, and the company raised AI spending to $130-145B.
How much is Meta spending on AI? Meta raised its 2026 AI capital expenditure forecast to $130-145 billion, up from $125 billion just three months ago.
What is Meta’s free cash flow? Meta’s free cash flow fell to $784 million, the lowest level in at least 5 years. This is down from $10+ billion quarterly just two years ago.
How does Meta compare to Microsoft? Microsoft’s AI spending is generating clear returns through Azure growth, while Meta’s spending has not yet translated into proportional revenue.
What is Meta’s AI strategy? Meta is building massive data centers, purchasing AI chips, and developing AI models to compete with OpenAI, Google, and Anthropic. The company plans to sell AI technology to enterprises.
