Meta AI spending soars to $145 billion as Zuckerberg faces compute dilemma and investor revolt

Meta's AI splurge lays bare its compute conundrum

July 30 (Reuters) - Meta (META.O), opens new tab can simultaneously fuel its own AI ambitions and rent out its scarce computing capacity to bolster returns, CEO Mark Zuckerberg signaled on Wednesday. The problem is: investors aren't buying it. The Instagram owner is splurging billions to build compute - chips, servers, energy and data centers that power AI - leaving it with free cash flow of just $784 million in the second quarter to run and grow its business. That collapse, of 91% from a year ago, drove its stock down 9% premarket on Thursday. Pressed by analysts for details on Meta's plans, Zuckerberg framed compute as a scarce strategic asset that the company should keep and build around, rather than simply sell for short-term profit. But he acknowledged that the company had received a number of offers for its computing capacity from businesses that wanted to deploy their own AI plans "at a meaningful premium" over what it invested to build that capacity. That tension sits at the heart of Meta's challenge in diversifying its revenue stream. Renting out compute could ease Meta's cash-flow squeeze, but would also divert scarce resources from its own push ⁠to build AI models and services. Having built its fortune selling ads on Facebook and Instagram, the company is now trying to take on larger rivals including Microsoft (MSFT.O), opens new tab, Alphabet (GOOGL.O), opens new tab and Amazon (AMZN.O), opens new tab that have deep ties to enterprises, an early and lucrative market for AI. Microsoft on Wednesday showed how its AI bets were paying off even as its free cash flow fell 23%. The Windows maker breezed past expectations for growth in its Azure cloud unit and Copilot assistant thanks to a huge base of corporate customers and its early AI build-out, sending its stock up 8%. SPENDING LIKE A CLOUD GIANT "We believe that there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly, but we think that there's a big opportunity obviously to sell compute as well," he said, as he painted a picture of what Meta hopes to build with its AI spending spree. Zuckerberg argued that AI-powered personal assistants could become a mass-market product used by billions of consumers, while business agents could eventually help companies handle customer service, sales and marketing. But beyond broad references to subscriptions and enterprise services, he offered few specifics on how those businesses would justify Meta's massive AI spending. Responding to a question from J.P.Morgan analyst Doug Anmuth, who noted that Meta was also purchasing ⁠capacity from third parties while selling compute, Zuckerberg said Meta was intentionally investing ahead of demand. "There is a lead time where we're investing in building out these data centers now. They come online at some point in the future. You obviously are not getting value out of them until they're online," he said. "Meta is spending like a hyperscaler without a hyperscaler's business model," said Josh Gilbert, online investing platform eToro's lead APAC analyst, referring to large cloud companies. "Microsoft, Alphabet and Amazon can point their data centre dollars at cloud businesses that sell compute straight back out the door, but Meta doesn't have the same outlet, so every dollar of build-out leans on the ads business." METAVERSE SCARE Meta's massive ⁠AI spending push has unnerved some investors, who are drawing parallels to the company's costly pivot to the metaverse - a bet that racked up tens of billions of dollars in losses without becoming a large revenue generator. Its free cash flow slump in the April-June quarter was the steepest since late 2022, when the metaverse bet attracted similar investor scrutiny. Still, Meta raised the low end of its capital spending forecast by $5 billion, lifting the range to between $130 billion and $145 ⁠billion. That echoes Alphabet, which raised its own forecast by $15 billion last week, reported its first cash burn on record and was punished with a 7% share drop. Meta CFO Susan Li said on a post-earnings call that the spending was justified because the industry had "underbuilt historically" for AI demand, making existing capacity "extremely valuable." She said capacity would remain tight "for the foreseeable future," creating opportunities for Meta to generate returns through products, enterprise services ⁠and compute sales. But responding to a question from Wells Fargo analyst Ken Gawrelski on whether Meta planned to internally use all its compute capacity through 2027, Li ended the call much as Zuckerberg had started it: arguing Meta could find profitable uses for additional compute both inside and outside the company, without indicating where those returns would ultimately be the greatest. "The earnings call felt a lot like a good old-fashioned brainstorming session," said Bernstein analyst Mark Shmulik. Reporting by Aditya Soni, Deborah Sophia and Jaspreet Singh in Bengaluru and Sayantani Ghosh in San Francisco; Editing by Saumyadeb Chakrabarty Our Standards: The Thomson Reuters Trust Principles., opens new tab

Zuckerberg lays out Meta's AI capacity dilemma: What to sell vs. what to keep

"A common trade-off that we need to make is around how much do you monetize something today versus develop future assets," Zuckerberg said on the call. As Meta gobbles up land to construct massive AI data centers, CEO Mark Zuckerberg says there's a balancing act when it comes to deciding whether to sell excess capacity or to preserve it. Among the four major U.S. hyperscalers, Meta is the only one that doesn't have a business selling cloud infrastructure and services even though its capital expenditures rival that of its peers. But in recent months, Zuckerberg has been floating the possibility of launching a cloud business as a way to take advantage of its capacity stockpile in a resource-constrained market. As CNBC reported earlier this month, Anthropic is in preliminary talks to lease computing power from Meta. "We're getting a lot of offers for compute at a significant premium over what we paid for it," Zuckerberg said on the company's second-quarter earnings call after the bell on Wednesday. "And we have more coding and productivity tools on our roadmap as well." Zuckerberg's comments came after Meta issued a weaker-than-expected revenue forecast for the third quarter and said free cash flow dwindled by 90% from a year earlier due to soaring capex. The stock sank more than 7% in after-hours trading, extending a slump that's pushed it down 11% for the year as of Wednesday's close. In the report, Meta bumped up the low end of its 2026 capital expenditure guidance by $5 billion, bringing the range to between $130 billion and $145 billion. Last week, Alphabet hiked the top end of its guidance to $205 billion and turned cash flow negative for the first time. And Microsoft said in its earnings report on Wednesday that capex for the year will be roughly $175 billion. Amazon reports results on Thursday. Investors have been seeking details on Zuckerberg's AI strategy, which has been scattershot and left Meta behind OpenAI, Anthropic and Google in the market for top models and services. "I think everyone wants clarity into what he wants to do in the compute business," Brent Thill, an analyst at Jefferies, told CNBC's "Closing Bell Overtime." Zuckerberg offered little by way of specifics on his plans, but he spelled out some of the various considerations at play. "In terms of running the business, obviously, a common trade-off that we need to make is around how much do you monetize something today versus develop future assets," Zuckerberg said. "I think that it's always a portfolio." He said that in looking at a potential enterprise business, it's not just about selling capacity. The company also has API and productivity services it can offer as well as AI agents that it's building, Zuckerberg said. "And I think that there's just a very, very large opportunity there," he said. However, Meta needs ample compute capacity to satisfy its own AI ambitions, especially as the company begins aggressively rolling out new models under the leadership of AI chief Alexandr Wang. Earlier this month, Meta debuted the Muse Spark 1.1 model, which Wang said represents the "strongest model for agentic and coding work yet" and at a cheaper price than offerings from OpenAI and Anthropic. "It would be foolish to basically just sell all of the compute and take a short-term profit," Zuckerberg said. Zuckerberg acknowledged that jumping into the enterprise, where Meta has historically struggled, will require some hard work, and that the company has to learn how to do it. While he didn't reference hiring a sales force, it will be an essential move if Meta is serious about selling to businesses big and small. "That's going to be somewhat a new muscle that we build as a company," Zuckerberg said. "But I think it's a very important one that we build." Dave Brown, a former longtime senior executive at Amazon Web Services, is set to join the company, CNBC recently confirmed. A big challenge for Zuckerberg as he tries to sell Wall Street on his vision is his spotty track record. Zuckerberg's most notable whiff was the metaverse, and his effort starting in 2021 to reshape the company around a futuristic digital world. That project is still costing Meta billions of dollars a quarter. Meta's Reality Labs, which develops virtual reality devices and wearables, lost $4.62 billion in the latest period on just $431 million of revenue. Still, Meta is desperate to diversify its business beyond digital ads, which still account for 98% of the company's revenue, and to show that it can be an influential player in AI. Zuckerberg is all-in. "I get that this is sort of a big bet across the industry," Zuckerberg said. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time." Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.

Meta shares fall as frustration grows over AI spending plans

Meta shares plunged on Wednesday as investors balked at its promise to keep spending on artificial intelligence (AI) projects while profits dwindle. Shares in the firm behind Instagram and Facebook fell 11% after its quarter results showed revenue between April and June grew 28% from a year ago, while profits fell 14%. Meta said it would spend $130bn (£973m) to $145bn this year, mostly on AI projects, up from the $125bn it said it planned to spend just three months ago. Chief executive Mark Zuckerberg said the company's AI spending was "accelerating every part of our core business" and that it planned to start selling the technology to other businesses. He said on the call that Meta's AI abilities and models were driving engagement on Instagram and Facebook and boosting the ability of smaller businesses to create advertising. Zuckerberg added that the company was developing AI agents, or AI chatbots that act somewhat autonomously. Such agents "will be the next wave of our product line in the months and years to come," Zuckerberg said. "Soon, we'll have agents that can work 24/7 on your behalf", Zuckerberg added during the call. "Great personal agents need to just work out of the box. I'm very excited about this and we will have more to share soon." As for Meta's plans to sell AI models and computer tools to other firms for the first time, Zuckerberg said the first step is to make its Muse Spark AI model "easier for companies to integrate". "We expect to build a large business for large businesses," Zuckerberg said. "We have more coding and product tools on our roadmap." Although Zuckerberg said the move would flex "a different muscle than we've historically had", he said the financial opportunity was too big to ignore. "It's not just about selling compute; it's the API services and the productivity services and I think there is a very, very large opportunity there and we're quite focused on that."

Meta Struggles With Limited Returns on Its AI Spending, Social Media Legal Woes

Meta's financial metrics have taken a notable punch due to its AI spending. In the company's earnings report on Wednesday, Meta executives shared that free cash flow for the past quarter was down to only $784 million, a major drop compared to the $8.55 billion number for the same time period last year. Revenue for the entire fiscal year is also looking likely to come below market expectations. Meta is the second AI hyperscaler in a week to receive investor wrath for struggling free cash flow. Last week, Google reported negative free cash flow due to the money it was pouring into AI, a first in company history. The tech giants claim the combined trillions of dollars they are pouring into AI is warranted to address a surge in demand. But experts have been growing weary of these promises, fearing that the investment is potentially overestimating how fast that demand will materialize, a scenario that, if true, could point to a potential AI bubble. Analysts had been expecting bad news on the free cash flow front for some time now, considering the eye-watering financial commitments the AI hyperscalers have been announcing in the past two rounds of big tech earnings. Google validated some of those fears last week, and Meta made matters worse on Wednesday. "I get that this is sort of a big bet across the industry," CEO Mark Zuckerberg said of AI investment in the company's earnings call. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time." Meanwhile, Zuckerberg's last big bet, the company's Reality Labs unit, lost $4.62 billion in the last quarter. The unit, which started as the driving force of Zuckerberg's shift to the Metaverse, has generated more than $80 billion in total operating losses in roughly 6 years. Zuckerberg thinks that the AI investment is already "paying off." For example, Meta said that it is now using LLM technology to improve its ad rankings and algorithms in the company's social media platforms. "Earlier this year, we reached a milestone of every public Reels and Feed post on Instagram being automatically processed through an LLM and analyzed across dimensions from topic to tone," Meta CFO Susan Li said in the earnings call. Company executives also spent the call promising a strong AI product pipeline soon, from Meta glasses to "agents that can work 24/7 on your behalf." Zuckerberg thinks that the popularity of AI agents can move beyond the coding world into everyday consumer use. "The first domain that agents have really taken off in is coding, but engineers are more technical and willing to spend time making those agents work," Zuckerberg said. "So, to build great personal agents, this needs to be a great consumer product that just works out of the box and is easy enough for billions of people to adopt and use. I'm very excited about this, and we're going to have more to share soon." But even if Meta's AI concerns resolve in Zuckerberg's favor, Meta is also bracing for trouble on the legal side. The company said that it spent $2.4 billion "in charges related to legal proceedings" in the past quarter. The company is fighting a barrage of lawsuits, with accusations that include allegedly using discriminatory AI to decide who would be laid off in a brutal restructuring earlier this year. But the bulk of those lawsuits have to do with the impact Meta's social media platforms have on kids and teens. Most of those lawsuits have to do with addictive design features that plaintiffs say were knowingly put in place to get children addicted to social media from a young age, leading to worse mental health outcomes down the line. One of those social media addiction lawsuits is being brought against Meta by four states, California, New Jersey, Colorado and Kentucky. Earlier this month, Meta unveiled in a court filing that the states' claims could cost the tech giant $1.4 trillion in damages. As of Wednesday night, the company's market valuation was a little less than $1.5 trillion.

Meta lifts the floor on its AI spending as revenue jumps but cash flow collapses

Second-quarter sales rose 28%, yet free cash flow fell 91% as capital spending on AI heads toward $145bn. Meta narrowed its forecast by raising the low end. Meta told investors it will spend even more on artificial intelligence this year, narrowing its capital-expenditure forecast for 2026 by lifting the floor rather than the ceiling. The company now expects to spend between $130 billion and $145 billion, up from a prior range that started at $125 billion, roughly double what it laid out a year earlier. The spending is landing on a fast-growing business. Meta reported second-quarter revenue of $60.8 billion, up 28% from a year earlier, its quickest growth since late 2021, as advertising held up and AI-tuned recommendations kept users scrolling. The advertising engine did the heavy lifting. Better AI recommendations lifted engagement across Instagram and Facebook, and a stronger ad market let Meta turn that extra attention into its fastest revenue growth in years. What the growth is not doing is reaching the bottom of the cash statement. Free cash flow fell to $784 million, down 91% from $8.55 billion a year earlier, a collapse that shows how completely the AI build-out is swallowing the money the ads business throws off. Profit came in soft as well. Earnings of $6.18 a share missed analysts' expectations of $7.22, dragged down in part by legal costs, even as the top line beat forecasts. Those legal costs are not incidental. Meta booked a $2.4 billion charge in the quarter, and a group of US states is seeking as much as $1.4 trillion in penalties over claims that its products are designed to addict young users, litigation that shadows every quarter. The user base, at least, is still expanding. Meta counted 3.6 billion daily active people across its apps, up 3% year on year, a reassuring figure after an earlier quarter in which daily users had dipped. Zuckerberg used the call to explain where the money goes. A large share of compute, he said, will train Meta's models, feed the core advertising business, and power the "personal agents" he expects to become a major consumer product. He also sketched a second act. Meta plans to "grow a large business serving large customers," he said, a reference to renting out AI compute, a cloud-style line that would turn its vast infrastructure into a revenue stream rather than only a cost. That framing is meant to answer the obvious worry. With capex doubling and cash flow evaporating, investors want to know when the spending becomes earning, and Zuckerberg's reply is that the same data centres will eventually pay their own way. The narrowing of the forecast is itself a signal. By raising the low end of the range rather than the high, Meta is effectively promising that spending will not come in light, a commitment to the build-out even as the returns remain a matter of faith. The pattern is not Meta's alone. Across Big Tech, the second-quarter numbers have told a similar story of surging AI investment outrunning the cash it generates, a bet the whole industry has made at once. Meta's version is distinctive in one respect. It is spending like a cloud provider without being one yet, funding a superintelligence ambition out of an advertising engine, and asking shareholders to trust that the two halves eventually meet. For now, the market gets what it has grown used to. Strong revenue, thinning profit, ballooning capex, and a chief executive insisting the outlay is not a risk but a moat, quarter after quarter. Wall Street has learned to live with the trade-off, at least for now. Meta's shares have largely held up through the spending spree, on the bet that a company growing revenue at 28% can afford to invest heavily, provided the growth does not stall. The reckoning, if it comes, will be about timing. Meta can afford this build-out today; the question its collapsing free cash flow raises is how many more quarters it can spend at this pace before the payoff has to arrive.

Meta narrows annual capex forecast as AI buildout grows

July 29 (Reuters) - Meta Platforms (META.O), opens new tab narrowed the range of its forecast for annual capital expenditure on Wednesday, as the social media giant doubles down on building a fleet of data centers to expand its AI computing power Shares of the company fell about 5% in extended trading. The Facebook parent now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. The company also raised the lower-end of its expense outlook to incorporate the $2.4 billion charges related to legal proceedings recognized in the second quarter. Meta said it now expects full-year 2026 total expenses to be in the range of $165 billion to $169 billion, compared with its prior forecast of $162 billion to $169 billion. At the heart of Meta is its advertising business, with Reels battling TikTok and YouTube Shorts for dominance in ⁠the short-video market and Threads taking on Elon Musk's X, while AI powers more precise ad targeting and recommendation systems to boost user engagement. Trend advisory firm Madison and Wall said in June it expects ad revenue to rise by 8.3% to $1.42 trillion in 2026, benefiting from several cyclical sports events, including the Winter Olympics and the FIFA World Cup. Social media advertising is expected to rise 14% to $421 billion during the year. Ad sales are also powering CEO Mark Zuckerberg's pursuit of superintelligence -- a hypothetical concept where AI surpasses human intelligence in every possible way -- and the development of its Meta AI assistant and AI smart glasses. Meta results come days after Alphabet's first cash burn on record in the second quarter jolted investors, as soaring AI spending strains one of the world's most profitable companies. The feverish spending by Big ⁠Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year. Meta is building several gigawatt-scale data centers across the U.S., including one in rural Louisiana, a project it expects to expand to 5 GW of compute capacity, with investment increasing to more than $50 billion. Media reports, including by Reuters, said earlier this month that Meta was in talks ⁠to lease computing power to Anthropic in a potential deal worth up to $10 billion over two years. Meta on Tuesday formed a venture for its El Paso, Texas, data center, which is 80% owned by BlackRock and 20% by Meta, and nearly resembles its arrangement with Blue Owl Capital for the Louisiana project, as ⁠the company looks to keep debt off its balance sheet. While investors are scrutinizing Meta's AI spending, it faces privacy-related risks tied to its smart glasses. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed ⁠its Facebook and Instagram platforms to addict young users and misled the public about their safety. Meta had warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues "could significantly impact" its business and financial results. Reporting by Katie Paul in New York and Jaspreet Singh in Bengaluru; Editing by Shilpi Majumdar and Nia Williams Our Standards: The Thomson Reuters Trust Principles., opens new tab

Meta misses earnings forecasts after Zuckerberg media push to promote AI

Stock tumbles nearly 8% after weaker-than-expected results, despite CEO's blitz to tout positive effects of AI Meta chief executive Mark Zuckerberg's media spree touting the positive impacts of artificial intelligence did little to cushion the blow of its second-quarter earnings, which sent its stock tumbling on Wednesday. In a Wall Street Journal op-ed published on Tuesday, Zuckerberg expressed his optimism for a world where everyone has access to a super-intelligent machine. "As a thought experiment, imagine only one person had a super-intelligent lawyer," Zuckerberg wrote. "He would have an unfair advantage in court. That would lead to a worse society. But now imagine everyone has a super-intelligent lawyer. Justice would be carried out much more fairly and efficiently than it is today." But Zuckerberg's message of AI optimism wasn't enough to alleviate Wall Street's initial reaction to Meta's second-quarter earnings. The company's stock slid nearly 8% after reporting weaker-than-expected results. Meta posted $6.18 in earnings per share, missing Wall Street expectations of $7.14 in earnings per share, according to Bloomberg consensus estimates. Revenue was $60.8bn, beating analyst predictions of $60.23bn. The company also raised the lower end of its expected expenses and spending for the year. Meta chief financial officer Susan Li said the company had $2.4bn in "charges related to legal proceedings" in the second quarter, raising total expenses to the range of $165 to $169bn, up from $162 to $169bn. And it expects 2026 capital expenditures to range from $130 to $145bn, up from $125 to $145bn. Meta has previously said a big portion of its capex is earmarked for its AI investments. Zuckerberg's PR blitz came as investors and analysts look for the company's justification of its massive spending on AI infrastructure, a concern that has contributed to the 10% drop in the company's share price year over year. Big tech companies such as Meta, which have increasingly burned through free cash flow, need to sell consumers and Wall Street on the promise of AI to defend their spending. The stock market's response to Zuckerberg's remarks on the company's earnings call, scheduled for later this evening, could reveal whether his messaging is enough to ease investor concerns. Meta has struggled to make an AI model to rival OpenAI or Anthropic, but it plans to start a cloud business to sell AI compute, monetizing some of its immense AI investments, Bloomberg reported this month. The report was one of the few things to boost investor confidence this year, spurring a spike in the stock's long decline. The day before earnings, Zuckerberg echoed his belief in decentralizing AI and creating an era of "personalized super-intelligence" where everyone has an AI assistant tailored to their needs and beliefs, in interviews with the New York Times and the Financial Times. Though he did not specify how Meta plans to approach this, based on the company's history, personalization would likely require consumers to hand over even more of their data. Still, Zuckerberg said it was better than his competitors' centralized models. "I think it is literally impossible to have a single benevolent super-intelligence that is simultaneously aligned with everyone at once," Zuckerberg told the New York Times. Meta may be "trying to do too much at once", Mike Proulx, the vice-president research director at advisory firm Forrester Research, said. "Every one of Meta's major growth lanes now carries a trust toll," Proulx said in a statement before listing Meta's new projects. "AI-generated advertising raises new brand-control concerns, smart glasses create new privacy questions, youth safety remains under intense scrutiny, and employee tracking initiatives spark data-collection backlash." Zuckerberg's narrative speaks to Meta's need to set itself apart from competitors - many of whom he said are sending messages filled with "doom" about the future of AI. "I don't understand why anyone who believes that AI will eliminate most jobs and much of humanity's relevance would rush to build that future," Zuckerberg wrote in the WSJ. Still, Meta's attempt to create a positive message around its AI systems may fall flat, said eMarketer senior analyst Minda Smiley. "It's not surprising that Zuckerberg wants to come out with a more cohesive message around the company's AI ambitions, especially as Meta tries to carve out its own lane," Smiley said in a statement. "But the optimistic, positive tone he's striking stands in stark contrast to the negative sentiment that's building toward social media companies over claims that they've harmed and addicted kids. This juxtaposition could make it more difficult for Meta to build credibility in an area where it's already a laggard." While Zuckerberg makes an argument for Meta's open-source approach to AI development, the company is being forced to answer for its previous practices developing its products and the impacts they have had on users. Meta is facing about 3,000 lawsuits alleging that it deliberately creates addictive products leading to the harm of children. The suits have been brought by families, school districts and states' attorneys general. Forty-two states have sued Meta in state courts, with Tennessee's case currently at trial. And a separate federal lawsuit brought by 29 attorneys general goes to trial in California next month. "The shifting regulatory environment is also a major Meta risk," said Proulx. "Policymakers are more focused on youth wellbeing, addiction, and platform safety ... Youth restrictions will affect who Meta can reach. That's a big problem for a company that depends on ad revenue." The lawsuits not only call Meta's corporate practices into question, they also come at a financial cost. The company has already suffered damaging losses, with two separate juries finding Meta liable for harming children and awarding plaintiffs millions in damages. Lawyers for the families, schools and lawmakers say they will not stop seeking high-cost damages until Meta changes the design of its products. Dara Kerr and Nick Robins-Early contributed reporting

Meta stock drops 10% as free cash flow gets crushed -- and Zuckerberg hints at cloud business | Fortune

The AI trade is coming to a realization: America's best businesses are turning into utilities. Such is the fate that befalls Meta, whose shares fell as much as 10% in after-hours trading Wednesday after the company missed earnings due to costs ballooning 55% (Meta's stock later recovered some ground and was down 7%). Its operating income fell 8%, net income dropped 14%, and it barely eked out just $784 million of free cash flow -- just narrowly missing falling into negative territory and well below the roughly $12 billion in free cash flow the company has averaged over the previous eight quarters. Meta's revenue in Q2 was up 28% from a year earlier, beating expectations, but operating income at Family of Apps, the segment containing Facebook, Instagram, WhatsApp and Messenger, fell to $23.4 billion from $25.0 billion. So, its core business grew revenue, but made less money doing it. And the money that the company is earning is immediately being used -- and most of it is not going to investors. The reason why is the term investors have come to love-to-hate: Capex. Capital expenditure now is up to $31.1 billion in the quarter, nearly double the amount spent the year earlier. Operating cash flow came to $31.9 billion; in other words, the company spent almost every dollar of cash its businesses could generate on AI infrastructure: servers, data centers, network infrastructure and chips. Meta has always had to invest in the data centers that serve its popular social networking services to people all over the world. But the massive amount of computing power necessary to train and run AI models has supercharged the level of investment, upending the financial model in which Meta's lucrative advertising business allowed it to stockpile cash. This new Meta, like its hyperscaler peers, must build multi-billion-dollar data centers at a non-stop pace, acquiring land, securing power, purchasing chips, running cooling systems and replacing machines that become obsolete within years (Depreciation and amortization in the second quarter rose 46% year over year to $6.4 billion in the quarter). Its other rivals, Microsoft, Amazon and Google, have created an escape hatch for themselves, renting that infrastructure to outside customers through enormous cloud businesses. That allows them to generate immediate revenue from their cloud investments. Indeed, Microsoft was enjoying its stock rising almost 2% from that cloud growth after Wednesday's close of market as Meta CEO Mark Zuckerberg fielded questions from analysts wondering why his company wouldn't do the same. Zuckerberg acknowledged the potential to generate additional revenue by renting its computing infrastructure to other companies, and confirmed that Meta has plans to get into the cloud business, promising an update soon. "We're getting a lot of offers for compute at a significant premium for what we paid for it," Zuckerberg said. But he framed the opportunity as more of a side quest than a core business, and said that he believed the real value is in offering its own AI services on top of its infrastructure. "It would be foolish to basically just sell all of the compute and take a short-term profit," Zuckerberg said. He added the company expects "a significantly higher margin on selling intelligence rather than selling compute directly." The intelligence Zuckerberg meant was a full-stack of businesses Meta hopes to build: an ad system that AI has made 15.7% better at converting, agents that could answer customer messages for a million businesses, an API selling access to Meta's models, and, most mysteriously, a personal assistant working 24/7 to build a profile of a user's health, finances, and relationships, which does not exist yet. "There's only so much that I can say on an earnings call about this," Zuckerberg said. In the meantime, the company has transitioned its financing. Meta issued $24.9 billion of long-term debt during the quarter and bought back no stock, after repurchasing more than $10 billion a year earlier. CFO Susan Li said Meta had been deliberately moving toward "a greater mix of debt" to fund infrastructure projects with long lives and expected passive income. Meta now expects full-year capital expenditures of $130 to $145 billion, having raised the floor. It spent $50.9 billion in the first half. That leaves $39 billion to $47 billion a quarter for the rest of the year, against operating cash flow of roughly $32 billion. So, it follows that this quarter was the last positive cash-flow quarter this year. But asked what 2027 would cost, Lee declined to say, offering instead that Meta expects to remain demand-constrained; that it has more profitable uses for computing power than computing power to use. Zuckerberg, not one to balk to investors, did not choose to hedge this time either. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time," he said.

Meta misses profit expectations, sticks to massive AI spending

San Francisco (United States) (AFP) - Facebook-parent Meta reported profits on Wednesday that fell short of Wall Street expectations, as the cost of staying in the race to deploy artificial intelligence -- along with hefty legal and severance charges -- hurt its bottom line. The social media giant said net income dropped 14 percent from a year earlier to $15.8 billion. Revenue, however, climbed 28 percent to $60.8 billion, beating estimates and underscoring the continued strength of its advertising business. Shares in Meta were down as much as 12 percent in after-hours trading, a sign of analyst skepticism over the scale of the company's AI spending. Its results contrasted with those of Microsoft, another tech giant that has faced investor doubts but beat analyst expectations on Wednesday, driven by its cloud and artificial intelligence businesses. At Meta, the profit decline was driven largely by one-time items, including $2.4 billion in charges tied to legal proceedings and $1.2 billion in severance from a round of layoffs in May. Meta has been fighting court and regulatory battles around the world, including one in which a California jury in March ordered Meta and Google to pay $6 million to a 20-year-old woman who said the platforms had addicted her as a child. The decision was a first-of-its-kind verdict that could be echoed in thousands of similar cases against Meta still pending. Meta reaffirmed that it would keep spending heavily on the data centers and chips underpinning its AI effort, telling investors it now expects capital expenditures of $130 billion to $145 billion this year -- nearly double what it spent in 2025 and slightly higher than its last forecast. "AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities," chief executive Mark Zuckerberg said in a statement. 'Meaningful premium' The new opportunities referred to Meta's plan to launch a cloud computing business that would rent out its vast computing power to outside customers. "We have quite a number of offers at a meaningful premium over what we paid for the (computing power)," Zuckerberg said on a call to analysts after the earnings report. This would offer a new revenue stream, echoing a strategy Elon Musk's SpaceX has used to help finance its own AI infrastructure. Unlike rivals Amazon, Microsoft and Google, Meta has never sold cloud services externally. Zuckerberg's "optimistic, positive tone" on AI's business possibilities "stands in stark contrast to the negative sentiment that's building toward social media companies over claims that they've harmed and addicted kids," said Emarketer senior analyst Minda Smiley. "This juxtaposition could make it more difficult for Meta to build credibility in an area where it's already a laggard," Smiley added. Meta's virtual reality division, Reality Labs, remained deep in the red, posting an operating loss of $4.6 billion in the quarter. The unit has bled tens of billions of dollars, and Meta has increasingly shifted its hardware focus toward AI-powered smart glasses, a promising consumer release outside social media. Unusually for a big tech company, Meta's AI spending spree has seen its cash pile wind down, with free cash flow falling to $784 million from $8.5 billion a year earlier. A similar AI-related cash burn spooked Wall Street last week when Google reported its latest earnings. Microsoft on Wednesday reported $90 billion in revenue and $35.8 billion in net income for its most recently completed quarter, potentially alleviating investor concerns about whether its investments in AI are paying off. Amazon, a major AI investor, and Apple, which has largely stayed out of the AI investment frenzy, both report on Thursday.

Meta continues to insist AI spend is totally justified, potentially blowing over $8 billion on data centers

Just because Meta keeps saying AI is paying off doesn't necessarily make it true. Meta has just reported a second quarter revenue of $60.80 billion. Though this figure represents another record-breaking year-on-year increase of about 28%, shares are reportedly down by 10%. Seems like the AI money pits may be shifting beneath Meta's feet. The company reported it had $784 million in free cash flow by the end of Q2 2026, but that represents a 91% year-on-year decrease compared to the $8.55 billion it had to throw around last year. Where did all that money go? Questionable spending on the company's VR and AR division, Reality Labs, is only part of the story. The rest can be attributed to Meta's AI infrastructure buildout. Both Meta CEO Mark Zuckerberg and CFO Susan Li projected optimism to investors during the latest earnings call. Zuckerberg told investors, "Our investments in AI are accelerating every major part of our core business." Zuckerberg offers the example of advertising, explaining, "We are using LLMs to improve how our systems predict and rank the ads that we show. We've expanded the context that we can take into account around a person's organic and ads activity to determine an ad's relevance, driving significant increases in relevance and conversions on both Facebook and Instagram." The company was somewhat buoyed this past quarter by making $59 billion in revenue from advertising. Zuckerberg went on to say, "On a dollar basis, our ads business is reporting faster year-over-year revenue growth than any other company's reported ad business -- so these AI investments are paying off." Zuckerberg then said, "We see a large enterprise opportunity to sell to businesses, including APIs, business agents, potentially selling compute directly, and other services that we're building for large customers." 'Selling compute' would be one way to potentially see a return on outsized AI investment. Li elaborates, "The industry has under-built historically for the wave of AI adoption, making existing capacity, including our own, extremely valuable." As such, Meta may not be slowing down on its AI infrastructure build-out. The company predicts it will spend somewhere between an eye-watering$130 billion and a face-melting $145 billion this year alone. Zuckerberg told investors, "As AI usage in our products and businesses continues to ramp, we continue to invest aggressively in infrastructure to meet the demand." With Meta seemingly content to spend, spend, spend, will investors stay the course? Or will Meta's various money pits finally give way beneath it? Time will tell.

Meta incurs Wall Street's short termist wrath as CapEx soars and cash flow crashes 91% to fund AI expansion, but Zuckerberg holds the line

Wall Street had been bracing itself for more defiance from Meta CEO Mark Zuckerberg over his continued determination to invest heavily in AI infrastructure, but few could have imagined that what they would be presented with was a 91% drop in cash flow to fund this spending. In Q2, the firm reported free cash flow of $784 million, down from $8.55 billion a year ago as CapEx soared to $31.08 billion, with more to come - the company now expects total 2026 spend to be as high as $169 billion, up from a range of $115 billion to $135 billion set out at the start of the year. Zuckerberg remained defiant about the need for such levels of spending: In terms of the different opportunities and how we think about the compute, overall, a substantial amount of the compute goes towards training models to be a leading lab. And I think that that's an important investment. But then the rest of it goes towards a set of different products and revenue opportunities, which spans from optimizing and improving our core business to building new consumer products that we're releasing soon to the API, to the business agents work, to the developer tools work on the road map that I alluded to and then also the opportunity to sell compute directly where we have quite a number of offers at a meaningful premium over what we paid for the compute. That last remark appears to refer to the news that Meta is set to rent AI computing power to rival Anthropic in a $10 billion deal. It's relatively small amount, but from a 'political' perspective, it would generate fresh revenue for Meta and - perhaps! - calm nerves from investors around the firm's ongoing aggressive infrastructure spend. Vision According to CFO Susan Li: Our AI investments are going to play a significant role in delivering on this vision, including the expansion of LLM-based content understanding to develop a deeper understanding of posts and creators that people value to capture user interest more precisely and respond more quickly to what they care about in the moment and using AI to surface high-quality, fresh and trending content and reduce the share of low-quality content. Second, we're continuing to improve our data infrastructure to allow our models to train on more data and leverage that data more effectively. We're adding more detail to how we describe content that users have engaged with in the past and enriching past user interaction sequences with more granular content. That allows our models to more precisely learn which engagements are more or less valuable to users. We're continuing to scale up both the length of user interaction sequences we use during training as well as the complexity of our model architectures across Facebook and Instagram to take advantage of the larger data sets. And then we've already made significant strides leveraging LLMs for content understanding. She added: Our longer-term capacity strategy aims to give us the flexibility to continue growing compute in 2028 and beyond by laying down data center and network foundations to accommodate future server decisions. The long-lived nature of these assets inherently provides the flexibility that will make it possible to adjust our investment to the pace of AI adoption. In addition, we have been making strategic investments in areas like our internal custom silicon effort, which will provide long-term strategic flexibility and supply chain leverage. This will be helpful in driving better returns on those long-term investments. Finally, we believe that overall industry capacity is going to remain tight for the foreseeable future. As we've said earlier, we strongly believe that the models, consumer experiences and enterprise offerings that we are building will be the best and highest ROI use of our infrastructure. She added: We expect that remaining nimble about these opportunities will help us fund our build-out more efficiently while preserving our strategic flexibility to have the compute when we need it and provide us multiple pathways to generate returns on expected on invested capital. In funding these infrastructure investments, the strength of our balance sheet gives us the ability to attract capital from a wide range of markets to supplement the cash flow generated by our business. Data centers Meta currently has 32 data centers around the world in operation or under construction, 28 of them in the US, but this is not enough to keep up with demand. In a recent development, the firm announced a joint venture with Blackrock, the world's largest investment firm, to develop and own a $14 billion data-center campus in El Paso, Texas. Meta last year unveiled plans to invest $1.5 billion to build the El Paso data center and boosted its spending commitment to $10 billion in March. BlackRock will own 80% of the venture, while Meta will own the remaining 20% and lease the entire campus, which will have 1 gigawatt of compute capacity. The companies expect to begin bringing the compute capacity online in 2028. Zuckerberg said of the deal: Building the infrastructure for superintelligence is key to making sure the benefits of this technology are distributed to everyone. Elsewhere Meta earlier thsi month scaled up the size and scope of a Lousiana data center project to deliver five gigawatts of compute capacity, bumping up the cost from the original estimate of $27 billion to more than $50 billion. My take We are really a full-stack technology company. We built our own data centers, our own infrastructure, our own chips, our own low-level software. I've said before that one thing that Zuckerberg does need to be given credit for is his defiance of Wall Street short-termists screeching to be shown the money from AI, not told about the amount that needs to go into investing in the tech's essential foundations. So far, he's holding the line.

Zuckerberg defends Meta's AI bets as forecasts disappoint

San Francisco | Meta Platforms has given a disappointing quarterly revenue forecast, stepping up pressure on chief executive Mark Zuckerberg to allay investor concerns that the company isn't swiftly benefiting from its massive outlay on artificial intelligence. The social media giant on Wednesday (Thursday AEST) also reported the lowest free cash flow in years, a sign of ballooning expenses for AI bets, including data centres and smart glasses, which could amount to $US145 billion ($208.5 billion) this year.

Meta's AI splurge lays bare its compute conundrum

The Instagram owner is splurging billions to build compute - chips, servers, energy and data centers that power AI - leaving it with free cash flow of just $784 million in the second quarter to run and grow its business. That collapse, of 91% from a year ago, drove its stock down 9% premarket on Thursday. Meta can simultaneously fuel its own AI ambitions and rent out its scarce computing capacity to bolster returns, CEO Mark Zuckerberg signaled on Wednesday. The problem is: investors aren't buying it. The Instagram owner is splurging billions to build compute - chips, servers, energy and data centers that power AI - leaving it with free cash flow of just $784 million in the second quarter to run and grow its business. That collapse, of 91% from a year ago, drove its stock down 9% premarket on Thursday. Pressed by analysts for details on Meta's plans, Zuckerberg framed compute as a scarce strategic asset that the company should keep and build around, rather than simply sell for short-term profit. But he acknowledged that the company had received a number of offers for its computing capacity from businesses that wanted ⁠to deploy ⁠their own AI plans "at a meaningful premium" over what it invested to build that capacity. That tension sits at the heart of Meta's challenge in diversifying its revenue stream. Renting out compute could ease Meta's cash-flow squeeze, but would also divert scarce resources from its own push to build AI models and services. Having built its fortune selling ads on Facebook and Instagram, the company is now trying to take on larger rivals including Microsoft, Alphabet and Amazon that have deep ties to enterprises, an early and lucrative market for AI. Microsoft on Wednesday showed how its AI bets were paying off even as its free cash flow fell 23%. The Windows maker breezed past expectations for growth in its Azure cloud unit and Copilot assistant thanks to a huge base of corporate customers and its early AI build-out, sending its stock up 8%. Spending like a cloud giant "We believe that there will continue ⁠to be a significantly higher margin on selling intelligence rather than selling compute directly, but we think that there's a big opportunity obviously to sell compute as well," he said, as he painted a picture of what Meta hopes to build with its AI spending spree. Zuckerberg argued that AI-powered personal assistants could become a ⁠mass-market product used by billions of consumers, while business agents could eventually help companies handle customer service, sales and marketing. But beyond broad references to subscriptions and enterprise services, he offered few specifics on how those businesses would justify Meta's massive AI spending. Responding to a question from J.P.Morgan analyst Doug Anmuth, who noted that Meta was also purchasing capacity from third parties while selling compute, Zuckerberg said Meta was intentionally investing ahead of demand. "There is a lead time where we're investing in building out these data centers now. They come online at some point in the future. You obviously are not getting value out of them until they're online," he said. "Meta is spending like a hyperscaler without a hyperscaler's business model," said Josh Gilbert, online investing platform eToro's lead APAC analyst, referring to large cloud companies. "Microsoft, Alphabet and Amazon can point their data centre dollars at cloud businesses that sell compute straight back out the door, but Meta doesn't have the same outlet, so every dollar of build-out leans on the ads business." Metaverse scare Meta's massive AI spending push has unnerved some investors, who are drawing parallels to the company's costly pivot to the metaverse - a bet that racked up tens of billions of dollars in losses without becoming a large revenue generator. Its free cash flow slump in the April-June quarter was the ⁠steepest since late 2022, when the metaverse bet attracted similar investor scrutiny. Still, Meta raised the low end of its capital spending forecast by $5 billion, lifting the range to between $130 billion and $145 billion. That echoes Alphabet, which raised its own forecast by $15 billion last week, reported its first cash burn on record and was punished with a 7% share drop. Meta CFO Susan Li said on a post-earnings call that the spending was justified because the industry had "underbuilt historically" for AI demand, making existing capacity "extremely valuable." She said capacity would remain tight "for the foreseeable future," creating opportunities for Meta to generate returns through products, enterprise services and compute sales. But responding to a question from Wells Fargo analyst Ken Gawrelski on whether Meta planned to internally use all its compute capacity through 2027, Li ended the call much as Zuckerberg had started it: arguing Meta could find profitable uses for additional compute both inside and outside the company, without indicating where those returns would ultimately be the greatest. "The earnings call felt a lot like a good old-fashioned brainstorming session," said Bernstein analyst Mark Shmulik.

Meta's profits, shares fall after AI spend increase

Shares fell by around 11%, even though revenue grew in the company's latest quarter. Meta, the company that owns Facebook, Instagram, and is looking to be one of the key forces behind an AI-driven future, has seen its share price plummet by up to 11% following its most recent quarterly financial results. Revenue for the company was up by 28% year-over-year, but when it comes to profit, it's a different story, as they are down 14%. The social media giant is looking to spend anywhere between $130bn to $145 billion this year, mostly on AI infrastructure. This is up from the $125 billion it said it was going to spend at the end of the last quarter. Mark Zuckerberg, Meta's chief executive, said that AI will be "accelerating every part of our core business." Soon, he thinks Meta will be able to sell its AI to other companies for profit. Chief financial officer Susan Li believes that by 2028, the profits from AI will help drive returns. Mike Proulx, an analyst at Forrester, believes that Meta may be repeating past mistakes with its AI spending. As per BBC News, he said: "There's a bit of similarity to Meta's metaverse missteps in that Meta is once again spending ahead of proven product demand." Zuckerberg is convinced the gamble will pay off. "I get that this is a big bet across the industry. My personal bet is that the people who invest in this will feel very good and be rewarded over time." It's clear not every investor agrees, but big tech is still betting heavily on AI being our future in almost every industry.

META Drops 9% as Free Cash Flow Collapses 91%, AI Agent Pitch Falls Flat - Meta Platforms (NASDAQ:META)

Mark Zuckerberg spent Wednesday's earnings call describing AI agents that would handle users' health, finances and careers, alongside coding and customer service agents he wants to sell to businesses. Investors spent Thursday selling. Meta Platforms Inc. (NASDAQ:META) fell about 9% as the market worked through a quarter in which the company's cash generation almost entirely disappeared. Meta produced $31.86 billion in operating cash flow over the three months, then spent $31.08 billion of it on capital expenditure, leaving free cash flow of $784 million. That is down 91% from a year earlier. Guidance did not help. Meta pointed third-quarter revenue to between $61 billion and $64 billion, and the $62.5 billion midpoint landed below Wall Street's roughly $63.1 billion expectation. Nobody Can Find The AI Revenue The advertising machine underneath all of this still works, with revenue of $60.8 billion beating estimates and ad demand holding firm. What Meta has not disclosed is how much incremental revenue its newer generative-AI products produce, or what return they earn on the infrastructure built to support them. Ed Zitron, noted AI skeptic, made that case on CNBC hours before the results landed. Meta "will not disclose its AI revenues," he said, arguing the superintelligence framing exists to keep the question off the table. Zitron said Meta had spent roughly $180 billion in capital expenditure before the latest quarter. Meta does not break out how much of that total went to AI. JPMorgan's Doug Anmuth said much the same after the call. Meta "did not come away learning much incremental" on the developer API, consumer and business agents, or plans to monetize compute directly, he wrote while cutting his target to $640 from $725. Traders Will Not Price Meta At The Frontier Polymarket traders give Meta a 2% chance of having the best AI model at the end of the year. Anthropic sits at 70%, Google at 11% and OpenAI at 9%. That holds even after Bank of America's Justin Post said Meta's next model, code-named Watermelon, "has achieved frontier-level performance on internal benchmarks." Nobody Gets To Vote Zuckerberg controls Meta's voting shares, leaving outside shareholders with little formal power to force a change. Analysts expect the spending to keep growing, with Anmuth projecting 2027 capital expenditure of $243 billion, up 70% year over year. Zitron made the same point less politely on CNBC. Zuckerberg "can do whatever he wants," he said. "He's a mad king. And so he'll spend money in whatever way he wants." Image: Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Market Focus: Meta's higher AI budget jolts shares, signals long-term push - ​Revenue Rises, Stock Slides

Market Focus: Meta's higher AI budget jolts shares, signals long-term push 1/5 Revenue Rises, Stock Slides Meta reported a strong second quarter, with revenue jumping 28% year-on-year to $60.8 billion, driven by robust digital advertising demand and AI-powered improvements to its ad platform. However, the results failed to impress investors as profits declined and spending on AI infrastructure continued to surge, sending the stock sharply lower in after-hours trading. (Sources: BBC News, CNBC) 2/5 AI Costs Bite Net income fell 14% from a year ago as Meta absorbed higher legal costs, severance expenses and massive investments in AI. The company also raised its 2026 capital expenditure outlook to $130-$145 billion, underscoring CEO Mark Zuckerberg's commitment to building AI infrastructure despite the near-term hit to earnings and cash flow. 3/5 Spending Squeezes Cash Heavy AI investments significantly reduced Meta's free cash flow, highlighting the growing cost of competing in the artificial intelligence race. While advertising remains the company's primary earnings engine, investors are increasingly focused on when AI investments will begin generating meaningful financial returns. 4/5 User growth remains a bright spot Meta's family of apps continued to attract more users, reaching around 3.6 billion daily active people. Instagram crossed 2 billion daily users, while Threads expanded to roughly 500 million monthly active users, providing the company with a larger audience to monetize through advertising and AI-powered services. 5/5 AI Payoff Awaited Although Meta's advertising business remains resilient, investors are demanding clearer evidence that its enormous AI investments will translate into sustainable earnings growth. With spending expected to remain elevated, future quarters are likely to be judged as much on AI monetization as on advertising performance.

Meta Platforms: Meta cash flow craters as Mark Zuckerberg doubles down on AI spending

Meta Platforms reported a 91% drop in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant's costly AI buildout amid an uncertain payoff. The Facebook and Instagram parent company reported free cash flow of $784 million in the second quarter ended June 30, down from $8.55 billion a year earlier, sending its shares down 10% in extended trading. Meta's cash flow wipeout echoed Alphabet's, which last week reported its first-ever cash-flow-negative quarter, stunning even the most bullish of Wall Street investors who sold off the Google owner's stock. Meta CEO Mark Zuckerberg said on an earnings call: "We expect that a significant portion of our compute is going to go towards training our models, growing our core business and delivering personal agents and new products, but we also expect to grow a large business serving large customers as well." Facing repeated ⁠questions from ⁠analysts about the company's AI strategy and how he planned to capitalize on the enormous sums Meta is investing in the technology, Zuckerberg said the spending reflected its bet that personal AI agents would become a huge consumer business. He argued the company was uniquely positioned to commercialize the technology at scale despite the near-term costs. Meta's free cash flow was the lowest since late 2022, when the company was facing similar investor scrutiny over spending on its ambitious metaverse bet. Its Reality Labs division has posted more than $80 billion in operating losses. Microsoft reported a 23% drop in free cash flow in the June quarter from a year earlier, but any concerns about its pace of spending were alleviated by surging growth in its high-margin cloud business. The software giant's shares rose 4.4% in aftermarket trading on Wednesday. FEVERISH SPENDING The feverish spending on AI infrastructure comes as Meta, which continues to be an almost entirely advertising-driven business, attempts to diversify its revenue sources. The ⁠company reported second-quarter earnings per share of $6.18, missing analysts' average estimate of $7.22, according to data compiled by LSEG. "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 research firm 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." Meta expects to spend as much as $145 billion on AI infrastructure this year, about double last year's investment, and a significant portion of Big Tech's more than $700 billion projected outlay on the technology in 2026. Reuters reported this month that Meta plans to double overall computing power to 7 gigawatts this year and to double it again, to 14 gigawatts, next year. It currently has 32 data centers across the globe in operation or under construction. The company raised the lower end of its capital expenditure outlook on Wednesday. It now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the beginning of the year it had forecast spending between $115 billion and $135 billion. One bright spot in the results was Meta's revenue, which jumped 28% to $60.8 billion in the second quarter, the quickest pace of growth since the fourth quarter of 2021, barring the first quarter of 2026. Usage of Meta's apps rebounded after a quarterly dip in April. The company reported 3.6 billion daily active people, a 3% rise year-over-year. Luke Stillman, a managing director at research firm Madison and Wall, said: "Meta's underlying ad business that's financing everything though is still performing well and is our main focus." META'S LEGAL TROUBLES While investors are scrutinizing Meta's AI spending, it faces legal risks ⁠related to its core business. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook and Instagram platforms to addict young users and misled the public about their safety. Meta warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues "could significantly impact" its business and financial results. The company said on Wednesday that it continued to see this scrutiny. It also had severance expenses associated with a sweeping restructuring it has been carrying out to reorient its inner workings around AI. In May, it laid off about 10% of its workforce, or around 8,000 employees, as part of that overhaul. On the earnings call, Meta Chief Financial Officer Susan Li said second-quarter operating income would have increased 9% year over year without the company's legal charges and severance expenses. Operating income actually fell 8%. "We continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the U.S., which may ultimately result in a material loss," she said in the company's earnings statement.

Meta shares tumble 10% as Mark Zuckerberg's AI spending spree stuns Wall Street

Meta Platforms reported a precipitous 91% drop in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant's costly AI buildout despite an uncertain payoff. The Facebook parent company reported free cash flow of $784 million in the second quarter ended June 30, down from $8.55 billion reported a year earlier, sending its shares down 10% in extended trading. Meta's cash flow wipeout echoed Alphabet's, which last week said it was cash flow negative for the first time ever as it spent $5.9 billion in the second quarter. The rate of spending stunned even the most bullish of Wall Street investors, driving Alphabet's stock down. Meta's revenue jumped 28% to $60.8 billion in the quarter, the quickest pace of growth since the fourth quarter of 2021, barring the first quarter of 2026. "We expect that a significant portion of our compute is going to go towards training our models, growing our core business and delivering personal agents and new products, but we also expect to grow a large business serving large customers as well," CEO Mark Zuckerberg said on an earnings call. Meta currently has 32 data centers across the globe in operation or under construction, with 28 of them in the US. The company also raised the lower end of its capital expenditure outlook. It now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the beginning of the year it had forecast capex between $115 billion and $135 billion. The feverish spending by Big Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year. "Meta's report echoes what we saw from Alphabet and Tesla last week: strong revenue growth, but even faster growth in spending. The market is repricing a deteriorating free cash flow outlook, and in an environment of higher capital costs, that does not sit well," said Thomas Monteiro, senior analyst at Investing.com. Luke Stillman, a managing director at research firm Madison and Wall, said: "Meta's underlying ad business that's financing everything though is still performing well and is our main focus." Meta's legal troubles While investors are scrutinizing Meta's AI spending, it faces legal risks related to its core business. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook and Instagram platforms to addict young users and misled the public about their safety. Meta had warned in April that legal and regulatory blowback in the European Union and the US over youth social media issues "could significantly impact" its business and financial results. The company said on Wednesday that it continued to see this scrutiny. On the call, Meta CFO Susan Li said second-quarter operating income would have increased 9% year over year without the company's legal charges and severance expenses. Operating income actually fell 8%. "We continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the US, which may ultimately result in a material loss," she said in the company's earnings statement.

Meta narrows annual capex forecast, as AI buildout grows

July 29 (Reuters) - Meta Platforms narrowed the range of its forecast for annual capital expenditure on Wednesday, as the social media giant doubles down on building a fleet of data centers to expand its AI computing power. The Facebook parent now expects 2026 capital expenditure to be between $130 billion and $145 billion, compared with its prior forecast of $125 billion to $145 billion. At the heart of Meta is its advertising business, with Reels battling TikTok and YouTube Shorts for dominance in the short-video market and Threads taking on Elon Musk's X, while AI powers more precise ad targeting and recommendation systems to boost user engagement. Trend advisory firm Madison and Wall said in June it expects ad revenue to rise by 8.3% to $1.42 trillion in 2026, benefiting from several cyclical sports events, including the Winter Olympics and the FIFA World Cup. Social media advertising is expected to rise 14% to $421 billion during the year. Ad sales are also powering CEO Mark Zuckerberg's pursuit of superintelligence -- a hypothetical concept where AI surpasses human intelligence in every possible way -- and the development of its Meta AI assistant and AI smart glasses. Meta results come days after Alphabet's first cash burn on record in the second quarter jolted investors, as soaring AI spending strains one of the world's most profitable companies. The feverish spending by Big Tech is expected to reach well above $700 billion this year, primarily on AI, while Morgan Stanley has pegged the estimated spend at more than $1 trillion for the next year. Meta is building several gigawatt-scale data centers across the U.S., including one in rural Louisiana, a project it expects to expand to 5 GW of compute capacity, with investment increasing to more than $50 billion. Media reports, including by Reuters, said earlier this month that Meta was in talks to lease computing power to Anthropic in a potential deal worth up to $10 billion over two years. Meta on Tuesday formed a venture for its El Paso, Texas, data center, which is 80% owned by BlackRock and 20% by Meta, and nearly resembles its arrangement with Blue Owl Capital for the Louisiana project, as the company looks to keep debt off its balance sheet. While investors are scrutinizing Meta's AI spending, it faces privacy-related risks tied to its smart glasses. The company said in a court filing this month that four states were seeking $1.4 trillion in penalties over accusations it designed its Facebook ?and Instagram platforms to addict young users and misled the public about their safety. Meta had warned in April that legal and regulatory blowback in the European Union and the U.S. over youth social media issues "could significantly impact" its business and financial results. (Reporting by Katie Paul in New York and Jaspreet Singh in Bengaluru; Editing by Shilpi Majumdar and Nia Williams)