Meta Platforms (NASDAQ:META) shares tumbled approximately 5% in after-hours trading on Wednesday, extending a 1.3% decline during the regular session, after the company reported a staggering 91% year-over-year drop in free cash flow to just $780 million. The decline underscores the immense financial strain from the company's aggressive artificial intelligence infrastructure spending.
Despite posting a record quarterly revenue of $60.80 billion, up 28% from $47.52 billion a year earlier, the cost of Meta's AI ambitions was laid bare. The company directed a massive $31.08 billion toward capital expenditures, including equipment and finance-lease principal payments, which consumed 97.5% of its $31.86 billion in operating cash flow. In the same period last year, that ratio was 66.6%. The free-cash-flow margin contracted sharply from 18.0% to just 1.3%.
The spending spree is not slowing down. For every additional dollar of revenue generated in the quarter, capital expenditures grew by $1.06. Meta also revised the lower end of its 2026 capital expenditure forecast to $130 billion, setting a new range of $130 billion to $145 billion, with the midpoint rising 1.9% to $137.5 billion.
While the core advertising business continued to perform well—advertising revenue grew 27% to $59.36 billion, ad impressions rose 14%, and the average price per ad increased 12%—the financial metrics took a hit. Operating margin fell to 31% from 43% a year ago. Net income declined 14% to $15.85 billion, and earnings per share of $6.18 missed the FactSet consensus of $7.19.
Looking ahead, Meta's third-quarter revenue guidance of $61 billion to $64 billion was below expectations. The midpoint of $62.5 billion fell roughly 1% short of the analyst average estimate of $63.14 billion. The company also flagged a roughly 1% negative impact from currency fluctuations. For the full year, Meta projects expenses between $165 billion and $169 billion but maintains its outlook for 2026 operating income to exceed last year's level.
CEO Mark Zuckerberg emphasized that "AI is accelerating our core business today," citing robust advertising rates. However, RBC analyst Brad Erickson noted that management needs to provide "concrete metrics, use cases and a clearer timeline" to convince investors, adding that the past quarter has only increased the requirement for proof.
The stock closed the regular session at $585.61, down 1.3%, and has fallen about 13% since July 15. The after-hours slide adds to a challenging period, with shares declining 6.6% over the past five sessions, marking an unprecedented 10-session losing streak.
Looking forward, the focus will be on cash-flow forecasts for 2026 and 2027, which could be more impactful than minor revenue shifts. Risks remain on both sides: improved advertising returns or revenue from paid AI features could restore cash conversion, but higher infrastructure spending, legal setbacks, or softer advertising demand could add to the strain. Meta also warned that U.S. trials related to youth issues could result in a material loss.
