Meta’s cash flow has collapsed by 91% in the second quarter, highlighting the heavy financial strain of the social media giant’s AI buildout. The parent company of Facebook and Instagram reported free cash flow of $784 million for the three months ending June 30, a sharp drop from $8.55 billion a year earlier. The results sent the company’s shares tumbling 10% in extended trading. The cash flow wipeout mirrors a trend seen at Alphabet, which reported its first-ever cash-flow-negative quarter last week, causing even bullish Wall Street investors to sell off the Google owner’s stock.
Massive Spending on Artificial Intelligence
Meta CEO Mark Zuckerberg said the company expects a significant portion of its compute power to go toward training models and growing core products. He argued the strategy reflects a bet that personal AI agents would become a major consumer business. Zuckerberg noted Meta is uniquely positioned to commercialize the technology at scale, despite the short-term costs.
The company expects to spend as much as smart payment systems or $145 billion on AI infrastructure this year. This represents a massive increase, roughly double last year’s investment, and accounts for a significant slice of the total projected spending by Big Tech on the technology in 2026. Meta plans to double its overall computing power to 7 gigawatts by the end of this year and double that amount again to 14 gigawatts next year. The company currently operates 32 data centers across the globe, either in operation or under construction.
While the balance sheet takes a hit now, the push toward generative AI suggests a future where digital interactions become more automated. This shift could fundamentally change how users interact with their phones, but it also raises questions about the sustainability of such high-tech investments during economic uncertainty. The company is betting that these costs will eventually pay off in entirely new business models.
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Revenue Growth and Legal Hurdles
Despite the cash flow concerns, the company posted a revenue jump of 28% to $60.8 billion in the second quarter. This growth is the fastest pace recorded since late 2021 and comes as daily active users hit 3.6 billion, a 3% increase year over year. Usage on Meta’s apps rebounded after a dip in April.
Investors are scrutinizing the company’s spending habits. Meta also faces serious legal risks. In a court filing this month, four states sought $1.4 trillion in penalties over accusations that the company designed its platforms to addict young users and misled the public about safety. The company warned in April that legal and regulatory blowback in the EU and the US over youth social media issues “could significantly impact” its business and financial results.
CFO Susan Li noted that second-quarter operating income would have increased 9% year over year without the impact of legal charges and severance expenses. The restructuring has already cost the company severance costs and resulted in a workforce reduction of about 10% in May. Li also warned that continued scrutiny on youth-related issues in several markets and scheduled trials in the US may result in a material loss.
Meta raised the lower end of its capital expenditure outlook on Wednesday. It now expects 2026 capital expenditures to be between $130 billion and $145 billion, compared with a prior forecast of $125 billion to $145 billion. At the start of the year, the company had forecast spending between $115 billion and $135 billion.
