Meta shares tumble as AI-related spending drains cash flow, CEO signals cloud ambitions
Meta reported a 28% revenue increase but a sharp rise in capital expenditures, leading to a 10% drop in its stock, while CEO Mark Zuckerberg indicated plans to enter the cloud-computing market.
Meta's second-quarter revenue rose 28% year over year, surpassing forecasts, yet operating income from its Family of Apps segment fell to $23.4 billion from $25.0 billion. The company’s capital expenditures jumped to $31.1 billion, nearly double the prior year, as it invests heavily in AI-related infrastructure such as servers, data centers, and chips. Operating cash flow for the quarter was $31.9 billion, indicating that most of the cash generated is being reinvested.
The heightened spending reflects the computing power needed to train and run AI models, a shift that alters Meta's traditional cash-flow model built on advertising revenue. Competitors like Microsoft, Amazon and Google offset similar costs by leasing excess capacity through their cloud services, a strategy analysts asked Meta about.
"We’re getting a lot of offers for compute at a significant premium for what we paid for it," CEO Mark Zuckerberg said, acknowledging interest in renting the company's infrastructure.
Zuckerberg described cloud services as a secondary opportunity, emphasizing a focus on selling AI-driven products rather than raw compute capacity.
"It would be foolish to basically just sell all of the compute and take a short-term profit," he added, noting expectations of higher margins from AI services.
Meta also disclosed a $24.9 billion issuance of long-term debt and halted share buybacks, shifting toward debt financing for long-lived infrastructure projects, according to CFO Susan Li.
The company now projects full-year capital expenditures of $130 billion to $145 billion, having spent $50.9 billion in the first half of the year. With operating cash flow around $32 billion, analysts expect the current quarter to be Meta's last positive cash-flow period for the year.
"My personal bet is that the people who invest in this are going to be rewarded and feel very good over time," Zuckerberg said.
The stock fell about 10% following the earnings release.