Meta shares fall as heavy AI spending drains free cash flow
Meta's shares dropped after the company reported a 91% plunge in free cash flow due to massive artificial intelligence investments, highlighting the financial risks for tech giants lacking cloud computing businesses to offset the costs.
Meta shares fell roughly 5% in after-hours trading after the social media giant reported a 91% collapse in its free cash flow. The dramatic drop to $784m from $8.55bn a year earlier came as the company accelerated its artificial intelligence infrastructure build-out.
The results underscore a growing divergence in how global markets are pricing the artificial intelligence boom. While rival Microsoft reported on the same day and successfully translated its massive investments into cloud revenue, Meta lacks a comparable enterprise rental business to absorb the costs.
Investors are now facing a steep bill for the company's technological ambitions. The company spent approximately $31bn on capital projects in the quarter alone and raised its full-year guidance to between $130bn and $145bn, nearly doubling last year’s $72bn expenditure.
Top-line growth remains robust, with revenue climbing 28% to a forecast-beating $60.8bn. However, net profit slid 14% to $15.8bn and earnings per share missed expectations as operating margins compressed to 31% from 43% a year ago.
The profit decline was exacerbated by $2.4bn in legal charges and $1.18bn in severance costs linked to the May layoff of about 8,000 employees. Furthermore, the finance chief warned that upcoming youth-related trials in the United States could lead to a material financial loss.
To manage the capital intensity, the company is increasingly moving financing off its balance sheet. This week it established a $14bn data-centre venture with BlackRock, which will retain an 80% ownership stake in the campus. Meanwhile, the Reality Labs hardware division lost another $4.6bn, pushing its cumulative deficit past $80bn.
Meta is not the only tech giant feeling the squeeze, with Alphabet reporting its first-ever negative free cash flow last week. Zuckerberg defended the strategy by stating, “AI is accelerating our core business today,” while the underlying advertising engine saw impressions rise 14% and prices increase 12%.
