Meta stock drops 10% as AI capex crushes cash flow

Meta's earnings reveal a fundamental shift in how the company finances itself and deploys capital. For years, Meta's advertising business generated enormous cash reserves, allowing it to buy back stock and return cash to investors. The explosion in AI infrastructure spending has inverted that model: the company is now issuing long-term debt (Meta raised $24.9 billion in Q2 debt versus zero share buybacks, a reversal from the $10 billion-plus annual buybacks of the prior year) to fund data centers with multi-year lifespans and no immediate revenue.

Zuckerberg's framing of the cloud business as secondary is instructive. While Microsoft, Amazon, and Google have built enormous cloud divisions that generate immediate revenue and offset their infrastructure costs, Zuckerberg is betting that Meta's real upside lies in proprietary AI services—better ad targeting, customer service agents, and a personal assistant still in development. His statement that the company expects "a significantly higher margin on selling intelligence rather than selling compute directly" suggests he views renting infrastructure as a low-margin distraction from higher-value AI product development. CFO Susan Li's refusal to project 2027 capex costs and her statement that Meta expects to remain "demand constrained" (meaning more profitable uses for computing power than available capacity) signals the company believes this spending wave will persist and eventually become profitable—but only through proprietary AI services, not cloud rental.