Meta stock plunges 8% on AI spending concerns

Meta's stock fell 8% on Thursday after the company's latest earnings report and forward guidance raised serious doubts about the long-term return on CEO Mark Zuckerberg's aggressive AI strategy. The company disclosed that it could enter negative free cash flow for the first time since 2012 as it prepares to double its compute capacity—a massive infrastructure expansion driven by the pursuit of advanced AI models.

To finance these eye-watering AI bills, Meta is shifting its business model in two directions. First, the company is pushing more premium social media services, moving away from its traditional ad-supported model. Second, Zuckerberg has suggested that Meta could lease out its excess computing power to other companies and researchers, creating a new revenue stream.

Yet the strategy carries an obvious risk: Meta's AI models have underperformed so far, falling short of expectations relative to rivals. Zuckerberg himself has railed against what he calls "centralized power" in AI, but his own company's models have not yet demonstrated the kind of breakthrough capabilities that would justify the tens of billions being poured into infrastructure. By contrast, Microsoft benefited from positive sentiment Thursday, with its shares jumping on the strength of faster cloud growth—a metric that reflects actual monetizable demand for AI infrastructure services.

Analysts are now forcing investors to confront a difficult question: does Meta's AI ambition represent genuine diversification beyond advertising, or is it an expensive distraction from the company's proven business? The historical track record does not inspire confidence—Meta has produced little of consequence outside its core social media and advertising operations. Without clear evidence that its models will eventually drive new revenue or user value, the compute spending risks becoming a persistent drag on profitability.