Meta shares fell more than 10% after a revenue forecast miss and the lowest free cash flow in years. Zuckerberg defended AI spending, hinting at a new business selling compute capacity.
Meta shares tumbled more than 10% to $524.49 at the New York open Thursday after the company issued a weaker-than-expected revenue forecast and reported its lowest free cash flow in years, renewing doubts about returns on its multibillion-dollar artificial intelligence push.
Chief Executive Officer Mark Zuckerberg defended the spending during the company's earnings call Wednesday. "I get that this is a big investment and it's a big bet," he said. "We see the technology working. We're happy with the trajectory of the lab. I'm excited about the products that are coming. And we believe that this is going to be a big thing."
Meta projected third-quarter revenue of $61 billion to $64 billion, the midpoint below analysts' average estimate of $63.2 billion, according to Bloomberg data. Second-quarter revenue came in at $60.8 billion, slightly ahead of the $60.3 billion estimate, driven by advertising on Facebook and Instagram.
The bigger issue for investors is capital expenditure. Meta raised the lower end of its full-year capex forecast to $130 billion from $125 billion, keeping the top end at $145 billion. Free cash flow fell to $784 million in the second quarter, the lowest since the third quarter of 2022, Bloomberg data show. The company narrowed its full-year expense outlook to $165 billion to $169 billion, a jump that includes $2.4 billion in legal penalties, according to a company filing.
Legal costs are rising. Thousands of individuals and U.S. school districts are suing Meta and other social media companies over allegations that their products are addictive and harmful to minors. In March, a jury in New Mexico assessed a $375 million penalty against Meta in a case about failing to protect children from online predators. Meta is fighting that ruling. Earlier this year, a separate jury found Meta and Google liable for a young woman's mental health struggles, awarding her a total of $6 million in damages, a case widely viewed as a litmus test for similar pending complaints.
Zuckerberg hinted at a potential new business: selling excess computing power. "There is just nowhere near enough compute for all of the demand," he said, adding that Meta has received offers from businesses willing to pay a "meaningful premium" over what Meta paid. Meta is weighing whether to sell capacity or keep it for its own AI products, he said.
The company recently announced a $14 billion partnership with BlackRock to build a data center complex in El Paso, Texas, and is constructing another large AI data center in rural Louisiana. Meta is among the technology industry's biggest spenders on AI infrastructure. Unlike Alphabet or Amazon, it does not operate a cloud computing business. Its AI offerings include a paid chatbot subscription and a paid AI model for developers, both in early stages.
Zuckerberg closed the call with a promise to long-term investors. "My personal bet is that the people who invest in this are going to be rewarded and feel very good over time," he said.
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