Meta’s shares dropped sharply on Wednesday as investor confidence wavered in the face of mounting AI expenditures and shrinking profitability.
The parent company of Instagram and Facebook saw its stock tumble 11% following its second-quarter earnings report, which revealed a 28% year-over-year revenue increase to $61 billion (£45.6 billion), but a 14% decline in profits to $6 billion.
Meta announced plans to allocate between $130 billion and $145 billion toward capital expenditures this year, primarily for AI initiatives—an upward revision from the $125 billion forecast just three months prior.
CEO Mark Zuckerberg emphasized that AI investments are accelerating growth across Meta’s core platforms and positioned the company to eventually monetize its AI advancements by offering them to external clients.
Chief Financial Officer Susan Li noted that providing AI solutions to third-party businesses would enhance returns on Meta’s substantial tech investments.
“By 2028, we’ll have turned over a lot of cards,” Li stated during the earnings call.
However, these new revenue streams remain unrealized. Meta’s free cash flow for the quarter stood at $784 million—the lowest in at least five years—as the majority of generated cash was absorbed by AI infrastructure costs.
“What it generated in cash this quarter almost all got eaten by AI infrastructure spending,” commented Forrester analyst Mike Proulx. “Investors now have to decide whether Meta’s growing list of AI initiatives represents company diversification or distraction.”
Proulx drew parallels to Meta’s earlier missteps with the metaverse, where billions were invested in virtual experiences that failed to gain traction among users.
This pattern echoes broader market trends, as Alphabet’s Google recently reported its weakest cash reserves on record, triggering a similar stock decline.
Zuckerberg acknowledged the risks but remained optimistic about the long-term potential of AI.
“I get that this is a big bet across the industry,” he said. “My personal bet is that the people who invest in this will feel very good and be rewarded over time.”
He highlighted that AI-driven features are already boosting user engagement on Instagram and Facebook, particularly through enhanced advertising tools for small businesses.
Additionally, Zuckerberg revealed that Meta is developing autonomous AI agents, describing them as “the next wave of our product line in the months and years to come.”
“Soon, we’ll have agents that can work 24/7 on your behalf,” Zuckerberg said. “Great personal agents need to just work out of the box. I’m very excited about this and we will have more to share soon.”
“We’re the best company in the world at scaling experiences to billions of people,” he added.
Looking ahead, Zuckerberg outlined plans to commercialize Meta’s AI models and tools by making its Muse Spark AI framework more accessible to enterprise clients.
“We expect to build a large business for large businesses,” he said. “We have more coding and product tools on our roadmap.”
While acknowledging that entering the B2B AI space requires capabilities beyond Meta’s traditional strengths, Zuckerberg stressed that the financial upside makes it a necessary pursuit.
“It’s not just about selling compute; it’s the API services and the productivity services—and I think there is a very, very large opportunity there, and we’re quite focused on that,” he said.
In contrast, Microsoft reported better-than-expected results, with its stock rising 5% in after-hours trading following a 18% increase in quarterly sales to $90 billion and a 31% jump in profits to $36 billion.
The strong performance underscores how investors are rewarding AI spending when paired with clear financial returns.
Microsoft, a major backer of OpenAI, also addressed recent concerns around AI model integrity during its earnings call, with CEO Satya Nadella emphasizing the importance of relying on multiple models rather than a single system.
“The biggest thing you take away from that is you can’t depend on any one model,” Nadella said.
CFO Amy Hood indicated that Microsoft plans to spend $175 billion on capital expenditures next year, mostly tied to AI and related infrastructure—down slightly from the $190 billion spent in the previous fiscal year.
