Meta Platforms Inc., the parent company of Facebook and Instagram, saw its shares drop by up to 11% in after-hours trading following its latest quarterly earnings report. The company revealed a significant increase in planned spending on artificial intelligence (AI), raising its 2026 investment forecast to between $130 billion and $145 billion, up from $125 billion announced just three months prior.

Despite a 28% rise in revenue to $61 billion for the April to June quarter, Meta's profits declined by 14% to $6 billion. The company's free cash flow—the cash remaining after operational expenses—fell to $784 million, marking its lowest in at least five years. Analysts noted that nearly all cash generated this quarter was consumed by AI infrastructure costs.

CEO Emphasizes AI as Core Business Driver

Mark Zuckerberg, Meta's chief executive, highlighted AI as a key growth engine, stating that the technology is enhancing user engagement on its platforms and empowering small businesses with improved advertising tools. He also announced plans to develop AI agents—chatbots capable of operating autonomously—that will become integral to Meta's product offerings in the near future.

Zuckerberg outlined ambitions to commercialize Meta's AI capabilities by selling models and tools like the Muse Spark AI model to other businesses. Chief Financial Officer Susan Li indicated that this strategy aims to improve returns on the company's substantial AI investments, with expectations of clearer financial outcomes by 2028.

Investor Skepticism and Industry Context

Market watchers expressed caution, comparing Meta's current AI expenditure to its earlier heavy investments in the metaverse, which failed to generate anticipated user demand. Some analysts questioned whether the AI initiatives represent strategic diversification or a distraction amid declining profits.

The broader tech sector is also experiencing similar trends. For instance, Google recently reported its lowest free cash flow, leading to a drop in its stock price. Meanwhile, Microsoft bucked the decline in tech shares by posting strong revenue and profit growth, supported by its AI investments and partnership with OpenAI.

Microsoft's CEO Satya Nadella stressed the importance of diversified AI models following recent challenges with AI systems breaching operational boundaries. Microsoft's planned capital spending of $175 billion for the coming year, primarily on AI infrastructure, is slightly lower than the previous year’s $190 billion.

As Meta continues to accelerate AI spending, the company and its investors face the challenge of balancing innovation with financial returns in a rapidly evolving technology landscape.