Meta stock drops 10% as free cash flow gets crushed-and Zuckerberg hints at cloud business

Key Points:

• Meta's Q2 revenue grew 28% year-over-year, surpassing expectations, but operating income for its Family of Apps segment declined from $25.0 billion to $23.4 billion, indicating higher costs despite revenue growth.
• Capital expenditures surged to $31.1 billion in Q2, nearly double from the previous year, with most cash flow being reinvested into AI infrastructure such as servers, data centers, and chips, rather than returned to investors.
• Unlike competitors Microsoft, Amazon, and Google, which monetize cloud infrastructure by renting it out, Meta currently focuses on developing AI services on its infrastructure, with plans to enter the cloud business but viewing it as secondary to AI-driven offerings.
• Meta issued $24.9 billion in long-term debt in Q2 and paused stock buybacks, signaling a strategic shift toward debt financing to support its massive infrastructure investments projected to reach $130-$145 billion for the full year.
• CEO Mark Zuckerberg expressed confidence that investors will be rewarded over time as Meta builds AI-powered businesses, despite short-term financial pressures and expected negative cash flow for the remainder of the year.