[New York = E-Daily Seong Joowon Correspondent] Meta Platforms’ stock price is plummeting on the 29th (local time) following the release of its second-quarter earnings report. This is due to the company’s third-quarter revenue forecast falling short of market expectations, coupled with a sharp decline in free cash flow caused by the burden of investments in artificial intelligence (AI) infrastructure. Meta’s stock closed at $585.61 during regular trading hours—down 1.3% from the previous trading day—and is now falling by nearly 10% in after-hours trading.

Meta announced today in its second-quarter (April–June) earnings report that it recorded revenue of $60.8 billion (approximately 87.825 trillion won) and earnings per share (EPS) of $6.18. Compared to analyst estimates compiled by market research firm London Stock Exchange Group (LSEG)—which projected revenue of $60.17 billion and EPS of $7.22—revenue slightly exceeded expectations, but EPS fell significantly short.

Disappointing Q3 Revenue Guidance… Below Market Expectations

Meta provided a Q3 revenue

guidance

range of $61.0 billion to $64.0 billion. The midpoint of this range is $62.5 billion, which falls short of both the LSEG forecast of $63.15 billion and the average analyst estimate of $63.2 billion compiled by Bloomberg. Meta explained that this guidance reflects a foreign exchange headwind of approximately 1 percentage point on year-over-year revenue growth, based on current exchange rates.
CNBC reported that the number of daily active users (DAU) was 3.6 billion, slightly below the 3.61 billion forecast compiled by StreetAccount.

Free Cash Flow Plummets… AI Investment Burden Begins to Weigh Heavily

Meta’s second-quarter free cash flow was $784 million, a 91% plunge from $8.55 billion in the same period last year. The Wall Street Journal (WSJ) noted that free cash flow, which exceeded $12 billion in the first quarter, shrank to less than $800 million this quarter.
Following Alphabet’s (Google’s parent company) announcement last week that it had recorded a negative second-quarter free cash flow of $5.9 billion for the first time in its history, Meta’s situation is seen as another example of how cash flow pressures stemming from AI investments are spreading across the Big Tech industry. However, CNBC noted that, unlike Amazon and Microsoft (MS), Meta does not have a distinct cloud business like Alphabet does.
Meta slightly raised the lower end of its annual capital expenditure (Capex) forecast from the previous range of $125 billion to $145 billion to $130 billion to $145 billion. It also narrowed its annual total cost forecast to $165 billion to $169 billion. The previous forecast was $162 billion to $169 billion. This adjustment reflects $2.4 billion in costs related to legal disputes.

Double-Digit Decline in Net Income… METALABS Posts Smaller-Than-Expected Loss

Meta’s second-quarter

net income

was $15.85 billion, down 13.6% from the same period last year ($18.34 billion, or $7.14 per share).
Total expenses for the second quarter were $42.03 billion, a 55% increase year-over-year. This included $2.4 billion related to legal disputes and $1.18 billion in severance costs resulting from the restructuring that began last May.
The Reality Labs division, which handles virtual reality (VR) and AI wearable devices, posted an operating loss of $4.62 billion in the second quarter. Revenue rose to $431 million from $370 million a year earlier. Since analysts had projected revenue of $423.4 million and a loss of $5.07 billion, the actual loss was smaller than market expectations. Reality Labs has reportedly incurred cumulative operating losses of more than $80 billion since the end of 2020.

Accelerating Data Center Investments… Aligned with Demand for AI Semiconductors

This week, Meta announced a project in partnership with BlackRock to build a data center in El Paso, Texas. According to CNBC and Bloomberg, the investment for this project amounts to $14 billion.
The Hyperion data center project in Louisiana is also expected to cost up to $250 billion. In addition, Meta has committed to building a $9 billion data center in Alberta, Canada.
Bloomberg reported that major U.S. tech companies, including Meta, plan to spend up to $725 billion this year on AI infrastructure, such as data centers. Alphabet also raised its annual capital expenditure forecast to a maximum of $205 billion last week. This aggressive expansion of data center investments by Big Tech is directly linked to demand from South Korean companies—such as SamsungElectronics(005930) andSK hynix(000660) —that supply AI semiconductors, including High-Bandwidth Memory (HBM).

AI Models and Legal Risks Are Also Key Points to Watch

Meta unveiled its new AI model, “Muse Spark 1.1,” earlier this month. CNBC reported that Alexander Wang, Head of AI at Meta, described the model as “the most powerful” for agent and coding tasks, while emphasizing its lower price compared to OpenAI and Anthropic. Meta has been aggressively expanding its AI strategy since recruiting Wang last June by investing $14.3 billion in Scale AI, the company he founded.
Meta CEO Mark Zuckerberg argued in an op-ed for the Wall Street Journal and an interview on the 27th that control over AI should not be concentrated in the hands of a few companies, and he also expressed his opposition to bans on foreign open-source models.
Legal risks are also a concern. According to Bloomberg, earlier this year, a jury found Meta and Google liable for causing mental health harm to a woman and awarded $6 million in damages. In March, Meta was fined $375 million in New Mexico in a lawsuit related to violations of its duty to protect minors, and the company is continuing to appeal the ruling. In addition, numerous lawsuits are underway citing the addictive and harmful nature of social media.

Massive AI Investments, Doubts About Monetization Persist

Meta has yet to allay investors’

doubts

about how it

will monetize

its massive AI investments. A key factor in the future direction of its stock price will be whether CEO Zuckerberg presents specific plans during the earnings call regarding AI chatbot subscriptions, paid Agent AI agents for businesses, and potential entry into the cloud business. Another key market variable is when Meta’s monetization efforts will yield tangible results, especially when compared to the pace of spending by competitors such as Alphabet, Amazon, and Microsoft.