"AI is not just a buzzword; it's reshaping our entire business," Meta CEO Mark Zuckerberg said after the company posted a spectacular quarter in revenue but saw profits squeezed by the soaring cost of artificial intelligence development. Meta reported $60.8 billion in revenue for Q2, beating analyst predictions, yet earnings per share fell short due to heavy spending on AI infrastructure and other expenses.

Advertising remains Meta's biggest moneymaker, boosted by AI-driven algorithms that have ramped up user engagement and enhanced ad targeting. Ad impressions climbed 14% year over year, and prices per ad rose 12%, helping daily active users across Meta’s apps reach 3.6 billion. The company’s focus on weaving AI deep into its platforms signals a long game to use emerging enterprise opportunities along with core revenue streams.

Still, the profits tell a different story. Earnings per share dropped to $6.18 from $7.14 a year ago, and operating margins shrank from 43% down to 31%. Meta’s expenses surged 55% to $42 billion, covering $2.4 billion in legal fees, $1.18 billion on severance, and continued heavy investments in AI research and data center growth. While operating cash flow hit nearly $32 billion, free cash flow evaporated to just $784 million after $31 billion was poured into capital expenditures, highlighting the enormous cash burn behind AI expansion.

Looking forward, Meta lifted its 2026 capital spending forecast to between $130 billion and $145 billion, raising the floor from previous projections. The company also nudged up its full-year expense guidance to as much as $169 billion, though it still expects operating income to surpass 2025 levels. This aligns with a broader industry pattern as tech giants like Microsoft intensify spending on AI and cloud services, with Microsoft recently reporting record Azure revenue. Meta’s results underline a tough trade-off: rapid AI-driven growth comes at the cost of compressed margins and massive capital demands.

This content is for informational purposes and does not constitute financial advice.