Market Focus: Meta's higher AI budget jolts shares, signals long-term push

Meta reported a strong second quarter, with revenue jumping 28% year-on-year to $60.8 billion, driven by robust digital advertising demand and AI-powered improvements to its ad platform. However, the results failed to impress investors as profits declined and spending on AI infrastructure continued to surge, sending the stock sharply lower in after-hours trading. (Sources: BBC News, CNBC)

Net income fell 14% from a year ago as Meta absorbed higher legal costs, severance expenses and massive investments in AI. The company also raised its 2026 capital expenditure outlook to $130-$145 billion, underscoring CEO Mark Zuckerberg's commitment to building AI infrastructure despite the near-term hit to earnings and cash flow.

Heavy AI investments significantly reduced Meta's free cash flow, highlighting the growing cost of competing in the artificial intelligence race. While advertising remains the company's primary earnings engine, investors are increasingly focused on when AI investments will begin generating meaningful financial returns.

Meta's family of apps continued to attract more users, reaching around 3.6 billion daily active people. Instagram crossed 2 billion daily users, while Threads expanded to roughly 500 million monthly active users, providing the company with a larger audience to monetize through advertising and AI-powered services.

Although Meta's advertising business remains resilient, investors are demanding clearer evidence that its enormous AI investments will translate into sustainable earnings growth. With spending expected to remain elevated, future quarters are likely to be judged as much on AI monetization as on advertising performance.