Meta Platforms experienced a significant drop in its shares following its second-quarter earnings report, as investors expressed concerns over the company's escalating AI spending plans. The company's stock fell as much as 10% in after-hours trading. Despite a 28% revenue increase to $60.8 billion, exceeding expectations, Meta missed profit forecasts due to ballooning costs associated with AI infrastructure.
Meta reported net income of $15.8 billion, a 14% decrease from the previous year. Operating income for its Family of Apps segment, which includes Facebook and Instagram, also declined from $25.0 billion to $23.4 billion. The earnings per share (EPS) of $6.18 was below the anticipated $7.14, largely affected by $2.4 billion in legal contingencies and $1.2 billion in severance charges from May layoffs.
Capital expenditures were a major point of contention, nearly doubling year-over-year to $31.1 billion in Q2, with the company raising its full-year capital expenditure forecast to between $130 billion and $145 billion. This aggressive spending led to a precipitous 91% drop in free cash flow, from $8.5 billion a year earlier to just $784 million, a figure well below its average. CEO Mark Zuckerberg hinted at a future cloud business to monetize its computing power, but emphasized that selling intelligence would be more profitable than selling compute directly.
Analysts expressed skepticism, with some noting that Meta's cash pile is winding down, a rare occurrence for a big tech firm. This mirrors a trend seen with other tech giants like Alphabet and Tesla, where strong revenue growth is outpaced by even faster spending growth on AI, leading to a deteriorating free cash flow outlook. The company's legal issues, including potential $1.4 trillion penalties related to accusations of addicting young users, added to investor concerns, even as Zuckerberg maintained an optimistic stance on AI's business potential.
