Meta Drops 11% on Rising AI Spending, Falling Profits
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- Meta shares dropped as much as 11% after Q2 revenue rose 28% to $61bn but profits fell 14% to $6bn, with investors balking at the company's accelerating AI capex
- Meta raised its 2025 capex guidance to $130bn–$145bn — up from $125bn just three months earlier — with the spending concentrated on AI infrastructure
- Meta's quarterly free cash flow plunged to $784m, the lowest level in at least five years, as AI infrastructure spending consumed nearly all the cash Meta generated per Forrester analyst Mike Proulx
- Mark Zuckerberg said Meta will start selling AI to other businesses, starting with integrating its Muse Spark model, telling analysts Meta expects "to build a large business for large businesses"
- Forrester's Mike Proulx compared the AI spending to Meta's tens-of-billions metaverse missteps, questioning whether the current AI push represents "diversification or distraction"
- Microsoft, reporting the same day, saw shares rise 5% in after-hours trading on revenue up 18% to $90bn and profits up 31% to $35.8bn, with $175bn in next-year capex — showing investors tolerate massive AI spending when paired with clear returns
- Satya Nadella used the Microsoft call to address OpenAI's recent model breach issues, saying "you can't depend on any one model," while the article also noted Google last week reported its lowest-ever leftover cash, which sent its own stock tumbling
Why it matters: Meta raised its AI capex guidance by $14.5bn in just three months while free cash flow hit a five-year low of $784m — investors now demand AI returns, not promises. Microsoft's 5% after-hours gain the same day, on 31% profit growth, shows Wall Street tolerates massive spending only when paired with clear financial results.
