Two of the biggest AI spenders reported on the same day. Microsoft’s spending showed up as cloud revenue. Meta’s showed up as a hole in its cash flow.
Meta’s revenue rose 28% to $60.8bn, beating forecasts, CNBC reported. But profit fell 14% to $15.8bn, earnings per share missed, and the shares dropped about 5% after hours.
The cash is draining out #
The starkest number is free cash flow. It fell to $784m, from $8.55bn a year earlier, a 91% drop, Reuters reported. Meta is now spending faster than the money is coming in.
The reason is the AI build-out. Meta spent about $31bn on capital projects in the quarter alone, and narrowed its full-year guidance upward, to between $130bn and $145bn, it said. Last year it spent $72bn. The bill is roughly doubling.
No cloud to show for it #
Here is the difference from its rivals. Microsoft and Alphabet spend on AI and can point to a cloud business that rents the capacity back out. Meta has no such business. Its spending funds its own apps and models, so investors see the cost without an obvious new revenue line.
It is not alone in the squeeze. Alphabet reported its first ever negative free cash flow last week. The financing is also moving off the balance sheet. This week Meta set up a $14bn data-centre venture with BlackRock, which will own 80% of the campus.
Costs and courts #
Two one-off costs deepened the profit drop. Meta booked $2.4bn in charges tied to legal proceedings and $1.18bn in severance from its May layoff of about 8,000 staff. Operating margin fell to 31%, from 43% a year earlier.
More legal risk is coming. Meta’s finance chief warned of youth-related trials in the US this year that “may ultimately result in a material loss.” Reality Labs, its headset and glasses unit, lost another $4.6bn, taking its running total past $80bn.
The bet and the payoff #
Zuckerberg struck an upbeat note. “AI is accelerating our core business today,” he said, pointing to new products and enterprise opportunities. The ad engine backs him up, with impressions up 14% and prices up 12%.
But the market wanted proof the spending pays off, and did not get it. Revenue is strong, yet profit is shrinking and cash is draining. Same day, same AI bet as Microsoft, opposite verdict.
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