Meta stock drops 10% as free cash flow gets crushed—and Zuckerberg hints at cloud business - Fortune

What the report says

Fortune reported that Meta shares fell as much as 10% in after-hours trading Wednesday, July 29, after quarterly results showed heavy artificial intelligence spending sharply squeezing cash generation. The stock later trimmed the decline to about 7%. Meta’s revenue rose 28% from a year earlier in the second quarter, but operating income fell 8%, net income declined 14%, and free cash flow was just $784 million, far below the roughly $12 billion quarterly average Fortune said the company had posted over the prior eight quarters.

The pressure came from a surge in capital expenditure tied to AI infrastructure. Fortune said Meta spent $31.1 billion on capex in the quarter, nearly double the year-earlier level and close to its $31.9 billion in operating cash flow. Spending is going toward servers, data centers, networking equipment and chips needed to train and run AI models. The Family of Apps business, which includes Facebook, Instagram, WhatsApp and Messenger, increased revenue but its operating income slipped to $23.4 billion from $25.0 billion.

Chief Executive Mark Zuckerberg told analysts Meta sees demand from companies willing to pay for access to its computing capacity and said the company has plans to enter the cloud business, with more details to come. However, he presented cloud rentals as secondary to Meta’s broader goal of selling AI services and products built on its own infrastructure.

Fortune also reported that Meta issued $24.9 billion in long-term debt during the quarter and did not buy back shares. CFO Susan Li said the company is shifting toward more debt to fund long-lived infrastructure. Meta now expects full-year capex of $130 billion to $145 billion, underscoring investor concerns about whether AI spending will produce returns quickly enough.