Bombay Durpun - Meta misses profit expectations, sticks to massive AI spending

The social media giant said net income dropped 14 percent from a year earlier to $15.8 billion.

Revenue, however, climbed 28 percent to $60.8 billion, beating estimates and underscoring the continued strength of its advertising business.

Shares in Meta were down as much as 12 percent in after-hours trading, a sign of analyst skepticism over the scale of the company's AI spending.

Its results contrasted with those of Microsoft, another tech giant that has faced investor doubts but beat analyst expectations on Wednesday, driven by its cloud and artificial intelligence businesses.

At Meta, the profit decline was driven largely by one-time items, including $2.4 billion in charges tied to legal proceedings and $1.2 billion in severance from a round of layoffs in May.

Meta has been fighting court and regulatory battles around the world, including one in which a California jury in March ordered Meta and Google to pay $6 million to a 20-year-old woman who said the platforms had addicted her as a child.

The decision was a first-of-its-kind verdict that could be echoed in thousands of similar cases against Meta still pending.

Meta reaffirmed that it would keep spending heavily on the data centers and chips underpinning its AI effort, telling investors it now expects capital expenditures of $130 billion to $145 billion this year -- nearly double what it spent in 2025 and slightly higher than its last forecast.

"AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities," chief executive Mark Zuckerberg said in a statement.

- 'Meaningful premium' -

The new opportunities referred to Meta's plan to launch a cloud computing business that would rent out its vast computing power to outside customers.

"We have quite a number of offers at a meaningful premium over what we paid for the (computing power)," Zuckerberg said on a call to analysts after the earnings report.

This would offer a new revenue stream, echoing a strategy Elon Musk's SpaceX has used to help finance its own AI infrastructure.

Unlike rivals Amazon, Microsoft and Google, Meta has never sold cloud services externally.

Zuckerberg's "optimistic, positive tone" on AI's business possibilities "stands in stark contrast to the negative sentiment that's building toward social media companies over claims that they've harmed and addicted kids," said Emarketer senior analyst Minda Smiley.

"This juxtaposition could make it more difficult for Meta to build credibility in an area where it's already a laggard," Smiley added.

Meta's virtual reality division, Reality Labs, remained deep in the red, posting an operating loss of $4.6 billion in the quarter.

The unit has bled tens of billions of dollars, and Meta has increasingly shifted its hardware focus toward AI-powered smart glasses, a promising consumer release outside social media.

Unusually for a big tech company, Meta's AI spending spree has seen its cash pile wind down, with free cash flow falling to $784 million from $8.5 billion a year earlier.

A similar AI-related cash burn spooked Wall Street last week when Google reported its latest earnings.

Microsoft on Wednesday reported $90 billion in revenue and $35.8 billion in net income for its most recently completed quarter, potentially alleviating investor concerns about whether its investments in AI are paying off.

Amazon, a major AI investor, and Apple, which has largely stayed out of the AI investment frenzy, both report on Thursday.

F.Prabhu--BD