Meta’s AI Spendings Are Burning Almost All of Its Cash Flow

The Facebook parent is growing strongly – and still earning less. In the second quarter of 2026, costs rose almost twice as fast as revenue, and free cash flow collapsed by 91 percent. In return, Mark Zuckerberg is promising a future in which billions of people have their own personal AI agent. The market is unconvinced: the stock fell around ten percent after hours.

The numbers: growth yes, profit no

Meta posted $60.8 billion in revenue in the second quarter, up 28 percent year-over-year. The advertising business, still the company’s engine, grew 27 percent.

The problem sits on the other side of the ledger: costs and expenses jumped 55 percent to $42 billion – considerably faster than revenue. What remained was net income of $18.3 billion, down 14 percent from a year earlier.

Operationally, the business is still working: net cash from operating activities rose 25 percent to $31.86 billion. It is simply being reinvested almost in full. Capital expenditures on servers, data centers and networking infrastructure surged 83 percent to $31.08 billion. That left free cash flow of $784 million – compared with $8.55 billion in the year-ago quarter and more than $12 billion in the previous quarter. A drop of 91 percent.

CFO Susan Li framed that as a strength: robust operating cash flow, she argued, puts the company in a position to fund the infrastructure buildout from its own resources.

The outlook: up to $145 billion in 2026 alone

Meta raised the lower end of its capex guidance for the year from $125 billion to $130 billion, with the upper end at up to $145 billion. Most of it goes into data centers. Just this week, Meta and BlackRock announced a $14 billion data center project in El Paso, Texas.

That puts Meta in a field where the large US tech companies are collectively pouring more than $700 billion into AI infrastructure this year – with estimates of roughly $1.5 trillion across this year and next. Nervousness in the markets is growing accordingly: Google’s free cash flow recently turned negative for the first time in decades, while Microsoft’s shares rose after it kept its investment plans unchanged. Wall Street currently appears to reward restraint – and Meta is delivering the opposite.

What the money is being spent on

Zuckerberg makes his case along three time horizons.

Short term – the advertising business. Meta says AI is improving content recommendations and the matching of ads with users. The 27 percent increase in advertising revenue is the evidence the company points to: part of the AI investment is already paying off today. Zuckerberg said the investments are now accelerating every major part of the core business.

Medium term – its own models. Meta had lost ground to OpenAI and Google in the race for frontier models and restructured its entire AI organization in 2025 under the Meta Superintelligence Labs banner. Under AI chief Alexandr Wang came Muse Spark, the model powering Meta AI, which handles text, images and other inputs; since then it has shipped Muse Spark 1.1 and the image generator Muse Image, with a video model to follow. In benchmarks for coding, reasoning and writing, however, Muse Spark still trails the competition. A more capable model code-named “Watermelon” is slated for this fall.

Long term – personal agents. This is the actual bet. Zuckerberg considers it extremely unlikely that five years from now billions of people won’t have a personal agent that understands their goals and works on their behalf around the clock – on finances, health, relationships, household management. WhatsApp and Meta’s other messaging surfaces are meant to become the central interface; WhatsApp is already the leading platform for interacting with Meta AI. The business agents rolled out globally on WhatsApp and Messenger during the quarter are, according to the company, already used by more than one million businesses. Those agents, Zuckerberg says, are the foundation for the next generation of products and revenue lines.

A new option: selling compute

Unlike Google, Amazon and Microsoft, Meta has no cloud business through which to monetize spare capacity. That could change: Zuckerberg floated selling computing power directly as a possible new line of business – while arguing that margins are significantly higher on selling intelligence than on selling compute. Concretely on the table is a deal with Anthropic, which offered in June to buy computing power from Meta; the volume could reach up to $10 billion, and talks are ongoing.

The catch in the whole construct is one of timing, and Zuckerberg named it himself: there is a lead time between building the data centers and getting anything out of them – value only materializes once they are online.

The legacy costs: Reality Labs and litigation

The metaverse division Reality Labs remains a money pit, if with one bright spot: $431 million in revenue (up 16 percent), driven above all by AI smart glasses, against a loss of $4.6 billion – roughly in line with a year earlier. Cumulatively, the division’s losses since 2021 now add up to around $88 billion.

On top of that come legal risks: Meta spent $2.4 billion on legal fees in the quarter, in part related to the lawsuits over the addictiveness of its social media products. It lost the first of nine bellwether trials in March; this month, a 15-year-old plaintiff from Florida withdrew his suit.

The user base, meanwhile, is growing unspectacularly but steadily: 3.6 billion people use Meta’s family of apps, up three percent.