Meta cashflow craters as Zuckerberg doubles down on AI spending

July 29 (Reuters) - Meta Platforms reported a 91% drop in second-quarter free cashflow on Wednesday, underscoring the financial strain of the social media giant’s costly AI buildout amid an uncertain payoff. Meta shares plunged on Wednesday as investors baulked at its promise to maintain spending on artificial intelligence (AI) projects even as profits dwindle. Shares in the firm behind Instagram and Facebook fell 11% after its results for the quarter from April to June showed revenue grew 28% from a year ago to $61bn (£45.6bn), while profits fell 14% to $6bn.

Meta said it would spend $130bn to $145bn this year, mostly on AI projects, up from the $125bn it said it planned to spend just three months ago. Chief executive Mark Zuckerberg said the company’s AI spending was “accelerating every part of our core business” and that it planned to start selling the technology to other businesses. Susan Li, Meta’s chief financial officer, told financial analysts that selling its tech to other companies would help it drive returns on its AI spending.

“By 2028, we’ll have turned over a lot of cards,” she said. Such lines of business have not yet materialized. Meta’s free cash flow for the quarter, what it held onto after paying for its operations, was $784m, the lowest level of the metric it has posted in at least five years, according to its financial records.

“What it generated in cash this quarter almost all got eaten by AI infrastructure spending”, analyst Mike Proulx at Forrester said. “Investors now have to decide whether Meta’s growing list of AI initiatives represents company diversification or distraction.” “There’s a bit of similarity to Meta’s metaverse missteps in that Meta is once again spending ahead of proven product demand,” Proulx added, referring to Meta’s previous spending of tens of billions of dollars on virtual experiences that fell flat with users. Google last week also reported its lowest ever amount of leftover cash, which sent its own stock tumbling.

“I get that this is a big bet across the industry,” Zuckerberg said of AI spending. “My personal bet is that the people who invest in this will feel very good and be rewarded over time.” He said on the call that Meta’s AI abilities and models were driving engagement on Instagram and Facebook and boosting the ability of smaller businesses to create advertising. Zuckerberg added that the company was developing AI agents, or AI chatbots that act somewhat autonomously.

Such agents “will be the next wave of our product line in the months and years to come,” Zuckerberg said.