Meta's free cash flow wiped out as AI buildout grows
By Katie Paul and Jaspreet Singh
Meta's Financial Performance and AI Investment
Sharp Decline in Free Cash Flow
July 29 (Reuters) - Meta Platforms reported a precipitous 91% drop in 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, down from $8.55 billion reported a year earlier.
Shares of the company fell about 5% in extended trading.
Rising Capital Expenditures and Expenses
Updated Capital Expenditure Outlook
Meta also raised the lower end of its capital expenditure and total expenses outlooks. 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.
Updated Total Expenses Forecast
It 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. The company said this incorporates $2.4 billion in charges related to legal proceedings recognized in the second quarter.
Industry-Wide AI Spending Trends
Comparison with Alphabet
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.
Investor Sentiment
"Meta is investing everything into AI capacity, and that's what has investors spooked every time earnings are announced. Meta only narrowed the low end of capex guidance this time, but they're already spending extremely aggressively as a percent of revenue," said Luke Stillman, a managing director at research firm Madison and Wall.
Ad Business Performance
"The underlying ad business that's financing everything though is still performing well and is our main focus," he added.
Big Tech's AI Spending Outlook
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.
(Reporting by Katie Paul in New York and Jaspreet Singh in Bengaluru; Editing by Shilpi Majumdar and Nia Williams)
