Meta Platforms reported second-quarter 2026 results that beat revenue expectations, but the company’s shrinking cash cushion became the main focus for investors. Free cash flow fell to $784 million, down from $8.55 billion a year earlier and marking its lowest level since the third quarter of 2022. After the earnings release, Meta shares fell more than 7% in after-hours trading.
Revenue beat estimates, but earnings missed
Meta posted revenue of $60.8 billion for the quarter, up 28% year over year and above analyst expectations of $60.2 billion. Even so, GAAP net income fell 14% from a year earlier, while earnings per share came in at $6.18, below the expected $7.14.
The earnings shortfall was tied mainly to two one-off items: $2.4 billion in legal-related costs and $1.2 billion in severance expenses. Together, the report said, those charges amounted to more than four times the company’s quarterly free cash flow.
Capital spending absorbed nearly all operating cash flow
Meta’s underlying business did not show a deterioration in cash generation. Operating cash flow for the quarter was $31.86 billion. The pressure came from capital expenditures, which reached $31.08 billion and consumed almost all of that operating cash.
According to Bloomberg, the spending was directed mainly to two areas: AI hardware such as smart glasses, and large data centers needed to train next-generation models. That left Meta with just $784 million in free cash flow at the end of the quarter.
A year earlier, spending on data centers and GPU purchases stood at $17 billion. The latest figure was nearly double that level.
Meta also paid $1.35 billion in dividends and equivalent distributions during the quarter, exceeding its free cash flow. The difference was covered by newly issued long-term debt. The report noted that for a large technology company that had previously held abundant cash reserves, borrowing to fund dividend payments is unusual.
Reality Labs remained deeply in the red
Reality Labs generated $431 million in revenue in the quarter, up 16% year over year. The growth was driven by AI smart glasses, while Quest headset sales declined.
The division’s operating loss reached $4.62 billion for the quarter, more than 10 times its revenue.
Third-quarter guidance came in below expectations
Meta guided third-quarter revenue to a range of $61 billion to $64 billion. The midpoint, $62.5 billion, was below analyst expectations of $63.2 billion. The company also said full-year total expenses could reach $165 billion to $169 billion.
Big Tech is spending heavily to secure computing power
Meta is not alone in trading cash flow for AI capacity. The report said Microsoft, Meta, Amazon and Alphabet are expected to post combined capital expenditures of about $700 billion in 2026, up 77% from $410 billion in 2025. Alphabet’s free cash flow turned negative for the first time in the same quarter and fell 38% year over year, while Microsoft’s dropped 22%.
Data tracked by Epoch AI shows overall cloud giant capital expenditures are expected to exceed operating cash flow in the third quarter of 2026. Oracle has already crossed that threshold, Amazon is in the process of crossing it, Alphabet is projected to do so around the first quarter of 2027, Meta around the third quarter of 2027, and Microsoft in the third quarter of 2028.
The report added that roughly two-thirds of this spending cycle is going into assets such as GPUs, which typically have useful lives of only three to five years. If those assets last just three to four years rather than an assumed five to six years, depreciation could erode operating margins faster than the market currently expects.