Meta's earnings report has left a bittersweet taste in the market. The parent company of Facebook, Instagram, and WhatsApp presented its second-quarter results, exceeding revenue expectations but disappointing in profit due to massive spending on artificial intelligence. Investor reaction was swift: a drop of over 7% in the stock price wiped out more than $350.000 billion in market capitalization.
The problem isn't that the advertising business is doing badly, but quite the opposite. Record revenues from 60.800 millionThe 28% increase over the previous year demonstrates that Meta's money-making machine is still running. However, the market is penalizing the accelerated investments in AI, which have driven up costs and drastically reduced free cash flow. The question on everyone's mind is when all that money will start to pay off.
Second quarter results: record revenue but declining profits
Total revenue reached 60.801 millionRevenue rose 28% year-over-year, slightly exceeding Wall Street forecasts of around $59.500 billion. However, net profit fell 14% to $6,18 per diluted share, compared to $7,14 last year. The operating margin narrowed to 31% from 43% in the previous year, weighed down by a 55% increase in total costs, which reached $42.030 billion.
Within that increase in costs, the following stand out: $2.400 billion in legal charges and 1.180 billion in compensation for the announced staff reduction in May 2026. The company closed the quarter with 75.472 employees, 1% less than a year ago, although some 8.000 workers affected by the staff reduction are still on the payroll and will stop being counted before the end of the third quarter.
The advertising business, despite everything, remains strong. The average number of daily active users across the app family was 3.600 billion in June3% more than the previous year. Ad impressions grew by 14% and the average price per ad rose by 12%, demonstrating that advertising demand remains strong.
AI spending skyrockets: data centers, chips, and more
The biggest burden on Meta's finances is its investment in artificial intelligence. The company raised its capital expenditure forecast for 2026 to a range of between 130.000 and 145.000 millions of dollars, primarily intended for the construction of data centers, the purchase of AI chips and the development of new AI models. As a result, free cash flow plummeted 91% to just $784 million, compared to $8.550 billion in the same quarter of the previous year.
Capital expenditures in the quarter reached $31.080 billion, and long-term debt grew 42% to 83.664 millionThe company also announced a joint venture with BlackRock for a $14.000 billion data center in El Paso, Texas. The tax outlook has tightened: Meta now expects a tax rate of 15% to 17% for the remainder of the year, up from the previous 13%-16%.
Mark Zuckerberg, founder and CEO of Meta, defended the strategy in the earnings release: "AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new business opportunities."However, investors believe that the increased spending currently exceeds the company's ability to generate additional profits from artificial intelligence.
Market reaction: stock market decline and doubts about the future
Meta shares fell more than 7% in after-hours trading on Wednesday, settling around $543. Over the previous eleven sessions, they had already accumulated a 20,88% decline, compared to a 5% drop for the Nasdaq over the same period. The tech company's market capitalization decreased by 356.000 over million, a figure comparable to the combined value of Santander and Inditex on the Stock Exchange.
A comparison with other major tech companies reflects the sector's disparity. Microsoft surged 15,51% after beating expectations with its earnings, while Apple has accumulated a 22,65% gain this year. On the other hand, Tesla has lost 31,32%, and Meta is projected to fall more than 18% by 2026. The Nasdaq 100 index is up 11,31% year-to-date, but tech companies are moving at two different speeds.
What do the analysts say?
Market consensus is divided. Firms like BMO Capital, JPMorgan, and Wedbush are cautious due to the lack of visibility regarding the return on AI investments. In contrast, Goldman Sachs, Morgan Stanley, UBS and Deutsche Bank They believe Meta is trading at an attractive discount of over 45% to its target price. According to Bloomberg's records, none of the 90 firms that follow the stock recommend selling.
The guidance for the third quarter points to revenues between $61.000 billion and $64.000 billion, slightly below Wall Street expectations. Meta also revised its operating expenses upward for the full year, which now start at $165.000 billion. Legal risk remains: the company noted trials related to minors in the United States that could generate significant losses.
Nevertheless, Meta faces the challenge of proving that its investment in AI will generate sufficient returns to justify the erosion of its margins. Meanwhile, the market is scrutinizing every move, and the pressure on Zuckerberg to deliver tangible results is only mounting.
