Meta's Q2 free cash flow plummets 91% amid massive AI spending

Meta Platforms, the parent company of Facebook, revealed a dramatic 91% plunge in its free cash flow for the second quarter, signaling the immense financial strain of its aggressive push into artificial intelligence. The company's free cash flow plummeted to $784 million from $8.55 billion a year earlier, a stark indicator of the heavy spending required to compete in the AI arms race.

Despite the cash flow crunch, Meta's overall financial performance showed resilience in its core advertising business. Revenue climbed 28% year-on-year to $60.8 billion, surpassing market expectations. However, net profit saw a 14% decline, dropping to $15.8 billion, partly attributed to substantial legal costs and severance expenses alongside the AI investments.

The company's commitment to AI infrastructure is reflected in its elevated capital expenditure forecasts. Meta now anticipates capital spending between $130 billion and $145 billion for 2026, an increase from its previous projection. Additionally, the company raised the lower end of its full-year expense forecast to account for $2.4 billion in legal-related charges recognized in the second quarter.

Adding to the financial pressure, Meta's Reality Labs division, which develops virtual reality headsets and AI-powered wearables like the Ray-Ban Meta smart glasses, reported a quarterly loss of $4.62 billion. Since late 2020, Reality Labs has accumulated over $80 billion in operating losses, underscoring the long-term, high-risk nature of its metaverse ambitions.