Meta stock sinks as Q2 earnings disappoint on multiple fronts

Meta Platforms META shares are slipping in extended hours on Wednesday as investors react to a messy Q2 earnings release that reignited aggressive spending fears.

The giant’s revenue reached $60.80 billion – up a better-than-expected 28% year-on-year – but its per-share profit at $6.18 failed to meet consensus estimates.

Net income came under pressure as surging AI infrastructure outlays and higher operating expense eroded operating margins.

The post-earnings sell-off adds pressure to META stock that was already down 10% heading into the quarterly print.

Why Meta missed earnings estimates in fiscal Q2

The primary catalyst behind Meta’s earnings squeeze was a massive 55% year-over-year AI-driven increase in overall costs, which swelled to $42.03 billion in the second quarter.

Depreciation fees tied to newly operational data center clusters, elevated server component prices, and higher compensation packages required to retain top-tier AI engineering talent weighed on the firm’s operating margin, which came in at 31%.

EPS was also dragged down by $2.40 billion in legal charges tied to ongoing privacy litigation and $1.18 billion in accrued severance expenses following May’s corporate restructuring.

Together, these operational overheads tempered an otherwise “healthy” 14% quarterly increase in ad impressions and a 12% pop in average price per ad.

META shares sink on disappointing Q3 guidance

Compounding margin concerns, Meta’s forward-looking outlook provided cold comfort to growth-focused investors.

Management now expects revenue to fall between $60 billion and $63 billion in fiscal Q3, landing below Wall Street’s consensus estimate of $63.5 billion.

CFO Susan Li highlighted macroeconomic uncertainty in the international ad market and potential FX headwinds as factors dampening near-term monetization velocity.

Despite solid engagement metrics across Facebook, Instagram, and Threads, experts noted that AI-driven monetization tools like generative ad creation and recommendation engines are not ramping up quickly enough to offset the structural decay in legacy digital display yields.

Raised capex floor is hurting Meta stock price

Finally, management’s decision to lift the bottom end of its full-year capital expenditure guidance is what triggered a sell-off in Meta shares after-hours.

META now projects 2026 capex to range between $130 billion and $145 billion – raising the floor from its previous range of $125 billion to $145 billion after spending $31.08 billion in Q2 alone.

The firm’s chief executive Mark Zuckerberg defended the aggressive outlays, insisting that building world-class compute clusters is necessary to train next-generation Llama models.

However, with free cash flow contracting and hyper-scale data center commitments stretching out through 2028, Meta Platforms Inc is taking a direct hit as the market refuses to bankroll an unending infrastructure sinkhole without immediate, tangible returns.

Heading into the Q2 earnings release, Wall Street, however, had a consensus Strong Buy rating on Meta stock with a mean price target of about $824.