Meta Stock Tumbles as Soaring AI Costs Decimate Profits and Cash Flow

Shares of Meta Platforms (META) plunged in pre-market trading after the company's second-quarter 2026 earnings report showed soaring costs and capital expenditures are severely pressuring profitability, alarming investors despite a solid revenue beat.

Second-Quarter Results in Detail

Meta reported Q2 revenue of $60.8 billion, a 28% year-over-year increase that surpassed the consensus analyst forecast of approximately $60.2 billion. However, this top-line strength was completely eclipsed by a significant bottom-line miss, with diluted earnings per share (EPS) of $6.18 falling about 14% short of the expected $7.20.

The profit shortfall was driven by a 55% surge in total costs and expenses, which reached $42 billion. The figure included $2.4 billion in legal charges and $1.18 billion in severance costs tied to a recent 8,000-person layoff. The impact on key financial metrics was stark:

• Operating margin compressed to 31% from 43% in the same quarter a year ago.
• Free cash flow plummeted by over 90% to just $784 million, down from $8.55 billion in Q2 2025.

Investor Concerns Mount Over AI Spending

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Investors were further unsettled by the company's capital expenditure plans. Meta narrowed its full-year 2026 capex guidance to a range of $130 billion to $145 billion, a figure that nearly doubles the $72.2 billion spent in 2025. The company confirmed the bulk of this spending is allocated to building out its AI infrastructure.

However, its revenue guidance for the third quarter of $61 billion to $64 billion was viewed by many as insufficient to justify such a monumental investment. This has intensified concerns that Meta's aggressive AI spending is outpacing its ability to generate a profitable return, at least in the near term.

Market Reaction

The market's response was decisive, with Meta's stock falling 8.4% to $536.55 in pre-open trading. The decline was entirely company-specific, as the broader S&P 500 and Nasdaq indices were trading modestly higher, indicating that the negative sentiment was a direct reaction to the earnings report and not wider market pressure.