Meta Platforms (META) delivered a second-quarter earnings report that showcased record revenue but also exposed the staggering cost of its artificial intelligence ambitions. Despite a 28% surge in sales to $60.8 billion, the company's stock plunged approximately 10% in after-hours trading as investors focused on a 13% earnings per share miss, dwindling free cash flow to under $1 billion, and a disappointing revenue outlook for the current quarter. The sell-off, which continued into Thursday's session, reflected growing anxiety over whether CEO Mark Zuckerberg's massive AI bet will ultimately deliver the returns investors are demanding.

The Numbers: Revenue Beat, Profit Miss

For the quarter ended June 30, Meta reported adjusted earnings per share of $6.18, significantly below the $7.22 consensus estimate compiled by LSEG . While revenue of $60.8 billion topped expectations of $60.2 billion, net income fell 14% year-over-year to $15.85 billion . The sharp decline in profitability was driven by a 55% surge in total costs and expenses to $42.03 billion, which included a $2.4 billion charge related to legal proceedings and $1.18 billion in severance costs from the company's May workforce reduction .

Investors were also disappointed by the company's third-quarter revenue guidance. Meta projected sales in the range of $61 billion to $64 billion, with the $62.5 billion midpoint falling below the approximately $63.2 billion analysts had expected . As one Wall Street analyst noted, the quarter was considered "barely passable," with the company "barely meeting the expectations" .

The AI Spending Problem: Free Cash Flow Craters

The most alarming financial metric was Meta's free cash flow, which collapsed by 91% to just $784 million, down from $8.55 billion in the same quarter last year . Operating cash flow rose 25% to $31.86 billion, but that was almost entirely consumed by $31.08 billion in capital expenditures, including finance lease payments, as the company continued its feverish AI data center buildout .

This represents the lowest free cash flow for Meta since late 2022, when the company faced similar investor scrutiny over its costly metaverse bets . The situation mirrors what occurred at Alphabet the previous week, when Google's parent company reported its first-ever negative free cash flow quarter, shocking even the most bullish Wall Street investors .

Capex Guidance: Raising the Floor

Rather than easing investor concerns, Meta raised the lower end of its 2026 capital expenditure forecast to $130 billion from a previous range starting at $125 billion, while keeping the ceiling at $145 billion . At the beginning of the year, the company had expected spending between $115 billion and $135 billion. The new midpoint of $137.5 billion represents roughly double last year's AI infrastructure investment, making Meta one of the largest spenders among Big Tech's projected $700 billion AI outlay .

Zuckerberg's Defense and Wall Street Skepticism

On the earnings call, CEO Mark Zuckerberg defended the spending strategy, stating that "AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities" . He noted that the company has received "quite a number of offers" from companies to buy excess computing power at a premium, but that Meta's immediate focus remains on using the capacity for its own products and AI agents .

Wall Street analysts were not convinced. "Meta's AI spend was easier to celebrate when margins were expanding. It's harder to celebrate now that the costs are showing up in the numbers," said Mike Proulx, a senior executive at Forrester . "Meta isn't spending billions on AI infrastructure just to make Facebook and Instagram better. The company believes AI can create entirely new businesses" .

Analysts at JPMorgan, TD Cowen, and Wells Fargo all lowered their price targets on the stock, citing a lack of clarity on how Meta will monetize its massive AI infrastructure beyond its core advertising business. TD Cowen analyst John Blackledge noted the stock decline "likely reflecting the slight 3Q rev miss alongside questions about timing/scaling of AI monetization amid massive capex cycle" .

The Bright Spot: Ad Business Remains Strong

Despite the profit squeeze, Meta's core advertising business demonstrated remarkable resilience. Advertising revenue rose 27% to $59.36 billion, with ad impressions up 14% and the average price per ad increasing 12% . The company's daily active people across its Family of Apps grew 3% to 3.60 billion . The Reality Labs division, however, continued to weigh on results with an operating loss of $4.62 billion .

What's Next for Meta?

With the stock trading down approximately 10% following the report—extending a year-to-date decline of about 19%—investors are now pricing in significant skepticism about Meta's AI strategy. The company's operating margin contracted sharply from 43% to 31%, a trend that analysts warn may continue as spending accelerates .

However, some analysts see a buying opportunity, noting that Meta's core ad business remains fundamentally strong and that the sell-off may be overdone. As one observer noted, "Meta's underlying ad business that's financing everything, though, is still performing well and is our main focus" . The company now faces the challenge of convincing Wall Street that its AI investments will eventually yield the returns Zuckerberg has promised.