Meta's share price fell 11% following disappointing financial results that revealed shrinking profits despite increased revenue, as the company announced plans to boost annual AI spending to between $130 billion and $145 billion.
Meta shares declined sharply on Wednesday after the company reported mixed financial results for the second quarter. While revenue increased 28% year-on-year to $61 billion, profits fell 14% to $6 billion, raising concerns among investors about the company's spending priorities. The social media giant announced it would increase its annual spending to between $130 billion and $145 billion, primarily for artificial intelligence initiatives, representing a substantial increase from the $125 billion projected just three months earlier.
Chief Executive Mark Zuckerberg defended the aggressive investment strategy, stating that AI spending was "accelerating every part of our core business" and that Meta intended to begin commercializing the technology for external clients. Financial Officer Susan Li suggested that revenue from selling AI tools to other businesses would eventually justify the expenditure, projecting visible returns by 2028. However, these commercial ventures have not yet materialized, and Meta's free cash flow for the quarter reached $784 million, its lowest level in at least five years.
Industry analysts expressed skepticism about the spending trajectory. Forrester analyst Mike Proulx noted that nearly all quarterly cash generation was consumed by AI infrastructure costs, adding that Meta's heavy investment resembled previous missteps with its metaverse initiative. He questioned whether Meta's expanding AI projects represented genuine business diversification or costly distraction. Meanwhile, Microsoft provided a contrasting example, reporting a 5% share price increase despite announcing $175 billion in annual capital spending, as the company demonstrated clearer connections between investment and profitability with revenue up 18% and profits rising 31%.
