Meta delivered the kind of revenue growth most companies can only dream about.
Revenue jumped 28%. Advertising sales surged. Billions of people continued using Facebook, Instagram, WhatsApp and Threads every day.
And yet, Meta’s stock fell sharply.
Shares finished after-hours trading approximately 7.5% lower on July 29 and were down about 9% the following morning. The exact decline changed throughout trading, but investors’ concern was clear: Meta missed profit expectations while its enormous AI investments squeezed margins and nearly consumed its quarterly free cash flow.
Here is what happened—and why strong growth was not enough.
Quick Answer
Meta’s core advertising business remained powerful in the second quarter of 2026, but diluted earnings of $6.18 per share missed Wall Street expectations of approximately $7.19.
Meanwhile, expenses rose 55%, net income declined 14%, and free cash flow dropped to only $784 million as Meta accelerated spending on AI infrastructure.
Investors are not questioning whether Meta can grow. They are questioning how much it will cost—and when that spending will produce sufficient returns.
Revenue Was Stronger Than Expected
Meta generated $60.8 billion in second-quarter revenue, an increase of 28% from the same period last year and slightly above Wall Street’s expectation of approximately $60.2 billion.
Family of Apps advertising revenue increased 27% to $59.4 billion, supported by:
- A 14% increase in ad impressions
- A 12% increase in the average price per ad
- Growing engagement across Meta’s platforms
- AI-powered improvements to ad targeting and recommendations
Approximately 3.6 billion people used at least one Meta app every day.
CEO Mark Zuckerberg also said Instagram reached two billion daily users, while Threads crossed 500 million monthly users.
Those numbers show that Meta’s core business is not falling apart. But the income statement told a more complicated story.
Meta Missed Wall Street’s Profit Expectations
Meta reported diluted earnings of $6.18 per share, compared with analysts’ expectations of approximately $7.19.
Net income declined 14% to $15.85 billion, while total costs and expenses surged 55% to $42.03 billion.
That pushed quarterly operating income down 8% to $18.78 billion. Meta’s operating margin fell from 43% one year earlier to 31%.
Two unusual expenses contributed to the decline:
- A $2.4 billion charge related to legal proceedings
- Approximately $1.18 billion in severance expenses connected with Meta’s May layoffs
Excluding those charges, Meta said operating income would have increased 9%.
That distinction matters. The advertising business remains strong, but Meta is entering a far more expensive phase of its AI transformation.
The $31.1-Billion Number That Worried Investors
Meta recorded $31.08 billion in quarterly capital expenditures, including principal payments on finance leases.
That money primarily went toward servers, data centres and network infrastructure required for Meta’s expanding AI ambitions. The amount was equivalent to more than half of the company’s quarterly revenue.
Infrastructure spending does not reduce operating profit immediately in the same way as salaries or legal expenses. These assets are generally depreciated over time.
But the cash still leaves the business.
Meta generated $31.86 billion in operating cash flow, but after infrastructure spending, only $784 million in free cash flow remained. That was down from approximately $8.55 billion one year earlier—a decline of about 91%.
For comparison, Meta reported nearly $15.85 billion in net income. The enormous gap between earnings and free cash flow shows how much cash its infrastructure expansion is absorbing.
Meta Is Raising Its Spending Plans Again
Meta now expects 2026 capital expenditures of between $130 billion and $145 billion, narrowing its previous forecast of $125 billion to $145 billion.
The company also expects total annual expenses of between $165 billion and $169 billion.
Meta spent approximately $72.2 billion on capital expenditures in 2025. The midpoint of its latest forecast suggests infrastructure spending could increase by roughly 90% in one year.
Management argues that the technology industry has historically built too little computing capacity for the expected wave of AI adoption.
Meta is therefore buying chips, building data centres and securing infrastructure before it knows exactly how consumers and businesses will use all that capacity.
That could prove visionary. It could also prove extraordinarily expensive.
Zuckerberg Is Asking Investors to Believe in New Businesses
Zuckerberg says Meta’s AI investments are already improving its advertising business and could eventually create several new revenue streams:
- Personal AI agents that work continuously for users
- Business agents that answer questions and complete sales
- Paid access to Meta’s AI models through developer APIs
- Coding and productivity tools for companies
- Potential sales of computing capacity
- Subscriptions offering additional AI features
More than one million businesses are already using Meta’s business agents each week, according to the company.
Meta also said its Advantage+ advertising products reached an annual revenue run rate above $75 billion, while more than nine million small businesses were using at least one AI-powered creative tool.
These figures suggest AI is strengthening Meta’s existing advertising machine. What remains unclear is whether its newer AI products can become large, independent businesses.
Management did not provide detailed revenue, profit or customer targets for personal agents, enterprise tools, APIs or potential compute sales.
Investors can see the spending today. They still cannot clearly measure the future revenue it is supposed to produce.
Could Meta Become a Cloud Competitor?
One of the earnings call’s most interesting moments came when Zuckerberg discussed Meta’s computing capacity.
He said the company had received multiple offers to purchase access to its compute at a significant premium over what Meta paid for it.
That creates an intriguing possibility: Meta could sell excess computing capacity to outside companies, placing part of its business closer to Amazon Web Services, Microsoft Azure and Google Cloud.
However, management believes Meta’s own models, consumer products and enterprise services may generate better returns than simply renting the infrastructure.
Selling enterprise technology would also require different products, customer relationships and sales capabilities from Meta’s traditional advertising business.
Zuckerberg acknowledged that enterprise services would be a “new muscle” for the company.
Debt Is Becoming More Important
Meta ended the quarter with $90.26 billion in cash, cash equivalents and marketable securities, alongside $83.66 billion in long-term debt.
The company remains financially powerful, but its capital structure is changing as infrastructure spending grows.
Meta recently announced a venture with BlackRock-managed funds to develop and own a data-centre campus in El Paso, Texas.
The project is expected to cost approximately $14 billion, deliver one gigawatt of computing capacity and begin coming online in 2028. BlackRock-managed funds will own 80% of the venture, while Meta will retain 20%.
The structure brings outside capital into the project, but it does not eliminate Meta’s financial exposure. Meta will lease the entire campus and has agreed to residual-value guarantees with an initial aggregate threshold of approximately $13 billion.
Such arrangements can help Meta build infrastructure faster, but they also make its long-term financial commitments more complicated to evaluate.
Reality Labs Remains a Costly Long-Term Bet
Meta’s Reality Labs division, which includes virtual and augmented-reality hardware, software and content, generated $431 million in revenue during the quarter.
That represented 16% growth, driven by stronger AI-glasses revenue, partially offset by weaker Quest headset sales.
However, Reality Labs recorded an operating loss of approximately $4.62 billion—more than $10 of operating loss for every dollar of revenue it generated.
Zuckerberg believes glasses could become an ideal way for people to interact with personal AI assistants throughout the day.
For now, Reality Labs remains a multibillion-dollar drag on operating profit alongside Meta’s rapidly expanding AI infrastructure program.
TwikUp Insight
Meta’s quarter revealed two versions of the same company.
One is an advertising giant reaching 3.6 billion people daily, growing revenue by 28% and using AI to make advertisements more effective.
The other is an infrastructure builder spending more than $31 billion in three months while producing less than $1 billion in free cash flow.
Meta does not need to prove that AI can improve advertising—it is already doing that. It must prove that its new AI businesses can eventually justify an infrastructure budget approaching $145 billion annually.
What Investors Should Watch Next
1. Free Cash Flow
Meta must demonstrate that cash generation can recover even while it continues building AI infrastructure. Consecutive quarters of extremely weak or negative free cash flow would increase pressure on management.
2. Revenue Outside Advertising
Advertising still produces almost all of Meta’s revenue. Investors will look for measurable growth from subscriptions, WhatsApp, business agents, developer APIs and enterprise AI products.
3. Operating Margins
If revenue continues growing rapidly while margins stabilize, investors may become more comfortable with Meta’s spending. If expenses continue outpacing revenue, concerns about AI returns will intensify.
4. Third-Quarter Performance
Meta forecast third-quarter revenue of $61 billion to $64 billion. Investors will watch whether the company can meet or exceed that range while controlling expenses and rebuilding free cash flow.
The Bottom Line
Meta’s second-quarter earnings were not weak in the conventional sense.
Revenue beat expectations, advertising remained powerful and AI was already improving the company’s core products.
But Meta also missed Wall Street’s profit expectations. Net income declined, expenses climbed 55%, operating margins contracted and free cash flow nearly disappeared beneath the weight of infrastructure spending.
The stock fell because investors saw an increasingly expensive future without enough evidence yet of how quickly Meta’s emerging AI products will repay the investment.
Meta is using the profits from today’s advertising empire to finance a future built around AI agents, enormous data centres, smart glasses and enterprise services.
That future may ultimately be valuable. For now, however, its price is becoming impossible for investors to ignore.
Investing involves risk. This article is for informational purposes only and does not constitute investment advice.