Meta just reported that its free cash flow fell 91% in a single year, from $8.55 billion down to $784 million, and Mark Zuckerberg's response was to announce he's raising the AI spending budget again. Shares dropped 10% in after-hours trading. Investors, apparently, had some thoughts.
The Numbers, Which Are Quite Something
Let's be precise about what happened here. According to the BBC, Meta pulled in $61 billion in revenue for the April-to-June quarter, up 28% from a year ago. That is a lot of money. Then the company spent almost all of it, and more, leaving behind $784 million in free cash flow, which the BBC notes is the lowest level Meta has posted in at least five years.
The New York Post reports that free cash flow was $8.55 billion this same time last year. So in twelve months, Meta went from keeping $8.55 billion after expenses to keeping $784 million. That is not a rounding error. That is a company that generated massive revenue and then essentially set it on fire in a data center.
Operating income also fell, dropping 8% year over year. Meta's CFO Susan Li told analysts it would have grown 9% if you strip out legal charges and severance costs. Which is a fun way of saying: ignore all the things that are actually happening to us and we're doing great.
Mark Zuckerberg's AI Betting Strategy
At the start of 2026, Meta forecast capital expenditures of $115 billion to $135 billion. By April, that had climbed to $125 billion to $145 billion. Now, per the New York Post, it sits at $130 billion to $145 billion. The floor keeps rising. Zuckerberg is not slowing down; he's locking in the higher number.
On the earnings call, Zuckerberg was characteristically serene about all of this. "I get that this is a big bet across the industry," he said, according to the BBC. "My personal bet is that the people who invest in this will feel very good and be rewarded over time." He also promised that soon Meta would have AI agents that "can work 24/7 on your behalf" and that he is "very excited about this."
He also said Meta is "the best company in the world at scaling experiences to billions of people," which is the kind of thing you say when your free cash flow just dropped 91% and you need to control the vibe in the room.
The Metaverse Is Calling, and It Wants Its Script Back
Forrester analyst Mike Proulx was not particularly gentle in his assessment. "There's a bit of similarity to Meta's metaverse missteps in that Meta is once again spending ahead of proven product demand," he told the BBC, referring to the tens of billions Zuckerberg burned on virtual reality experiences that users largely refused to use.
That comparison should haunt every investor on the call. The metaverse was also going to be transformative. It was also the future. Zuckerberg was also very excited about it. Meta spent so much money on it that it had a moment around 2022 where analysts openly questioned whether the company would survive the bet. It did survive, barely, and then pivoted hard into AI. Now here we are again.
Proulx put it plainly: "Investors now have to decide whether Meta's growing list of AI initiatives represents company diversification or distraction." That is a polite way of asking whether Zuckerberg has learned anything.
The New Plan: Sell the Shovels
Zuckerberg did announce one concrete pivot on the call. Meta plans to start selling AI models and tools to other businesses, which would be a new line of revenue entirely. The BBC reports the first step involves making its Muse Spark AI model easier for other companies to integrate. "We expect to build a large business for large businesses," Zuckerberg said, with the kind of sentence construction that happens when you're speaking very quickly.
CFO Susan Li backed him up, telling analysts that selling to other companies would help Meta drive returns on its AI spending. "By 2028, we'll have turned over a lot of cards," she said. That is a poker metaphor, and it is doing a lot of work in that sentence, because right now Meta is sitting at the table with a shrinking chip stack and telling everyone the good cards are coming.
The New York Post notes that Meta currently has 32 data centers across the globe either operating or under construction, with 28 of them in the US. The infrastructure is real. The revenue from it, at this point, is mostly theoretical.
Meanwhile, Microsoft Had a Very Different Kind of Wednesday
While Meta's stock was tumbling, Microsoft reported quarterly results that sent its shares up 5% in after-hours trading. Per the BBC, Microsoft posted $90 billion in revenue, up 18%, with profits rising 31% to $36 billion. Also spending massively on AI. Completely different reception from Wall Street.
The contrast is instructive. Microsoft's AI spending is enormous, but it is coupled with profit growth investors can actually see. Meta's AI spending is also enormous, but it keeps company with profit declines and a 91% free cash flow collapse. The market is not anti-AI spending in principle. It is anti-spending-without-returns, and right now Meta is the clearest example of that problem in the industry.
Microsoft CFO Amy Hood said the company would spend $175 billion on AI infrastructure over the coming year, down from the $190 billion it spent in the year to June. So Microsoft is actually pulling back slightly. Zuckerberg, meanwhile, raised his floor.
Oh, and There Are Also the Lawsuits
Buried in the earnings release but very much not a minor detail: the New York Post reports that four US states are seeking $1.4 trillion in penalties against Meta over accusations that it designed Facebook and Instagram to addict young users and then lied to the public about it. One point four trillion dollars. For context, that is more than twenty times Meta's annual revenue.
Meta warned back in April that legal and regulatory scrutiny over youth social media issues "could significantly impact" its business. On Wednesday, CFO Susan Li confirmed the company "continues to see this scrutiny" and that there are multiple youth-related trials scheduled in the US this year that "may ultimately result in a material loss." Material loss is a very calm phrase for a situation involving a potential $1.4 trillion liability.
So Meta is spending $130 to $145 billion on AI it hasn't yet monetized, watching its free cash flow collapse to a five-year low, and simultaneously defending itself against the largest potential penalty in corporate history. Fine. Everything is fine.
The Dingo Take
You are supposed to believe that this is just the cost of doing business at the frontier of technology, that the visionaries get mocked before they get celebrated, and that Zuckerberg in 2026 is like Zuckerberg in 2004, a man simply too far ahead of the curve for ordinary investors to follow. That is the story he is telling. It is the same story he told about the metaverse.
The metaverse cost Meta somewhere north of $40 billion before Zuckerberg quietly stopped talking about it as the singular future of human experience. The AI bet is already on track to dwarf that number. Maybe it works. Maybe the AI agents materialize, maybe the enterprise software business becomes real, maybe by 2028 Zuckerberg turns over those cards and they're all aces. That is genuinely possible. But right now, a company posting $61 billion in quarterly revenue is keeping $784 million of it, which is a margin so thin it could slide under a door.
Big Tech's combined AI spending is expected to clear $700 billion this year, with Morgan Stanley projecting over $1 trillion next year, according to the New York Post. Someone somewhere is eventually going to have to explain who is buying all of this AI at a price point that justifies what was spent building it. Zuckerberg says that someone will be large businesses paying for Meta's models and API services. Great. Call us when the invoice clears.
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