Meta Q2 2026 earnings miss as AI spending cuts free cash flow to $784M

Meta Q2 2026 earnings gave investors a clean read on the cost of the company’s AI buildout: revenue rose 28% to $60.80 billion, but profit fell and capital expenditures left only $784 million of free cash flow. Shares of Meta Platforms Inc. dropped more than 8% in after-hours trading after the company missed earnings expectations while reporting a modest revenue beat.

For the quarter ended June 30, Meta posted diluted earnings of $6.18 per share, down from $7.14 a year earlier. Analysts had expected $7.22 per share on revenue of $60.24 billion, according to estimates cited by StockStory. Net income declined 14% to $15.85 billion, while operating income fell 8% to $18.78 billion.

The margin compression was clear. Meta’s operating margin narrowed to 31% from 43% in the year-earlier quarter as total costs and expenses climbed 55% to $42.03 billion. Research and development spending rose 67% to $21.66 billion. General and administrative expenses more than doubled to $5.61 billion, including $2.40 billion in charges linked to legal proceedings.

Why did Meta stock fall after Q2 2026 earnings?

The stock reaction came from the earnings miss and the scale of spending required to fund Meta’s AI and infrastructure plans. Operating cash flow was $31.86 billion, but capital expenditures, including principal payments on finance leases, reached $31.08 billion. That left free cash flow of $784 million, compared with $8.55 billion a year earlier.

Meta did not buy back any stock during the quarter, after spending $10.17 billion on repurchases in the same period last year. The company paid $1.35 billion in dividends. It also raised $24.91 billion in debt during the quarter, bringing long-term debt to $83.66 billion from $58.74 billion at the end of 2025. Cash, cash equivalents and marketable securities stood at $90.26 billion.

Where Meta is still growing

Meta’s core advertising business continued to expand. Family of Apps, which includes Facebook, Instagram, Messenger and WhatsApp, generated $60.37 billion in revenue, up 28%. Advertising revenue accounted for $59.36 billion of that total, up 27%. Segment operating income fell 6% to $23.39 billion.

Engagement improved from the prior quarter. Meta said daily active people averaged 3.60 billion in June, up 3% from a year earlier and above the 3.56 billion reported in March. Across Family of Apps, ad impressions increased 14% and the average price per ad rose 12%.

Reality Labs, Meta’s virtual and augmented reality unit, reported $431 million in revenue, up 16%. The company said demand for AI glasses helped the increase. The unit still posted a $4.62 billion operating loss, compared with a $4.53 billion loss a year earlier.

AI costs, layoffs and guidance

Meta Chief Executive Mark Zuckerberg said in the company’s earnings release that AI is helping its core business, supporting new products and creating enterprise opportunities. On the earnings call, Zuckerberg said more than 1 million businesses use Meta’s business agents each week on WhatsApp and Messenger. Chief Financial Officer Susan Li attributed much of the cost growth to compensation for technical employees, particularly AI hires, along with infrastructure and cloud expenses.

Severance tied to Meta’s May headcount reduction added $1.18 billion in costs. That reduction affected about 8,000 jobs. Meta ended the quarter with 75,472 employees, down 1% year over year, though the company said most of the May cuts were still included in that count and will roll out of the total by the end of the third quarter.

Meta forecast third-quarter revenue of $61 billion to $64 billion, with the midpoint below the roughly $63 billion analysts had modeled. The company raised the low end of its full-year expense outlook by $3 billion, now guiding to $165 billion to $169 billion. It narrowed 2026 capital expenditure guidance to $130 billion to $145 billion, from a prior range of $125 billion to $145 billion, and expects a 15% to 17% tax rate for the rest of the year.

The company also repeated that U.S. youth-safety trials scheduled this year may lead to a material loss. For Meta, the quarter showed a still-growing ad engine funding a much more expensive AI and infrastructure program, with legal costs adding pressure at the same time.

This story draws on original reporting from SiliconANGLE.