Meta Platforms|Revenue Beat, Stock Sinks 10% as Cash Flow Collapses

The Miss Behind the Beat

Meta Platforms opened Thursday trading down more than 10 percent, at $524.49, after Wednesday's second-quarter earnings call. Revenue actually beat estimates, rising 28 percent year over year to $60.8 billion. The number that broke the stock was earnings per share: $6.18, a full $1.04 below the $7.22 Wall Street expected.

The deeper shock sat below the headline. Operating cash flow was a healthy $31.86 billion, but capital spending crushed it down to just $784 million in free cash flow, versus $8.55 billion a year earlier. Total costs and expenses grew 55 percent, far outpacing the 28 percent revenue growth, and operating margin dropped from 43 percent to 31 percent.

Meta narrowed its 2026 capital expenditure outlook to a range of $130 to $145 billion, lifting only the low end from its prior $125 billion floor. CFO Susan Li declined to give any 2027 capex figure at all. That silence, more than the guidance itself, is what investors are now pricing.

Same Bill, Opposite Verdict

Microsoft reported minutes apart from Meta on the same evening and moved in the opposite direction, rising 9.8 percent as Meta fell 10 percent. Microsoft's Azure cloud business grew 43 percent and crossed $100 billion in annual revenue for the first time, with backlog up 84 percent to $678 billion.

The two companies spent similarly aggressive sums on AI infrastructure, yet the market judged them by a different question: does the spending generate a paying customer, or just an internal cost? Microsoft rents its AI capacity to outside businesses, so the spending shows up as Azure revenue growth. Meta consumes its own capacity internally, so the same spending appears only as rising depreciation charged against the advertising business, with no external revenue on the other side of the ledger.

Meta's depreciation expense climbed 46 percent to $6.4 billion this quarter, a direct drag on margin with no revenue line to offset it. That structural difference, not the size of the capex number itself, is the evidence Wall Street pointed to when explaining why one AI spender got rewarded and the other got punished on the very same day.

Zuckerberg's Case, Unproven

On the earnings call, Zuckerberg defended the spending directly. "I get that this is a big investment and it's a big bet," he said. "We see the technology working... we believe that this is going to be a big thing." He described a compute market so tight that Meta is weighing selling excess capacity to outside companies at a premium over what it cost to acquire, even as it keeps buying more from independent data-center operators.

The core advertising business is not the problem: ad revenue rose 27 percent to $59.36 billion, ad impressions grew 14 percent, and price per ad climbed 12 percent. But that engine alone is financing a data-center buildout that includes a $14 billion BlackRock-backed complex in El Paso and a Louisiana facility projected to cost upward of $250 billion. A cloud-computing business that could turn some of that spending into Microsoft-style external revenue remains, in Zuckerberg's own words, still a plan rather than a product.

Meta guided third-quarter revenue to $61 to $64 billion, with the midpoint under the $63.2 billion analysts had modeled, and gave no 2027 capex number to anchor expectations further out. Until Meta's compute-selling plan produces an actual revenue line like Azure's, the stock's next move likely tracks whether that quiet on 2027 guidance turns into a concrete cloud business or stays an unfulfilled promise repeated on the next call.