Meta Platforms’ second-quarter 2026 earnings report delivered a split verdict that sent shares tumbling roughly 10% in after-hours trading on Tuesday. Revenue of $60.8 billion beat the $60.2 billion Wall Street consensus and landed near the top of management’s own $58–$61 billion guidance range — a clear sign Meta’s advertising engine is still firing. But earnings per share of $6.18 missed the $7.17 consensus by nearly 14%, and the damage beneath the headline was severe enough to shake even long-term bulls on the stock.
The culprit was a 55% surge in total costs and expenses to $42.0 billion for the quarter. That figure included $2.4 billion in litigation charges and elevated severance costs, but the structural driver is Meta’s accelerating AI arms race. The company raised its full-year 2026 capital expenditure guidance to $130–$145 billion — up sharply from $114–$119 billion — and projected total expenses of $165–$169 billion for the year. The result was devastating to free cash flow, which collapsed 91% year-over-year to just $784 million. Q3 revenue guidance of $61–$66 billion also came in slightly below the $66 billion analyst consensus. Mark Zuckerberg lost an estimated $15 billion in paper wealth as the stock sold off, and operating margin compressed to 30.9% from the mid-40s seen in earlier quarters.
For investors, Meta’s print exposes a widening gap between the company’s narrative and its near-term financials. The advertising business remains healthy — daily active users across the Family of Apps held steady and AI-powered ad tools are delivering measurable ROI improvements for advertisers. But with capex running at $130+ billion annually and free cash flow near zero, Meta is effectively funding its AI buildout on the assumption that monetization follows investment. At roughly 22x forward earnings, the stock is not obviously cheap given the cash flow erosion. Investors should watch Q3 closely: if revenue lands at the low end of guidance, the margin pressure story has more room to run — and the stock could revisit its summer lows.
