Meta’s Zuckerberg defends AI bets to sceptical investors amid disappointing Q3 revenue forecast

META Platforms gave a disappointing quarterly revenue forecast, stepping up pressure on chief executive officer Mark Zuckerberg to allay investor concerns that the company is not swiftly benefiting from its massive outlay on artificial intelligence.

The social media giant also reported the lowest free cash flow in years, a sign of ballooning expenses for AI bets, including data centres and smart glasses, which could amount to US$145 billion this year.

Meta relies on its broad internet advertising business to finance these investments, but shareholders are growing increasingly antsy over Meta’s ability to bring in sales and profit at a fast enough pace.

Investors balked earlier this year when Zuckerberg increased projected expenditures on AI, and many of them rue Meta’s heavy spending on virtual reality and the Metaverse, which cost tens of billions of dollars without a meaningful return.

On a call with investors on Wednesday (Jul 29), Zuckerberg offered repeated assurances that his focus on AI will ultimately pay off.

“I get that this is a big investment and it’s a big bet,” Zuckerberg said.

“We see the technology working. We’re happy with the trajectory of the lab. I’m excited about the products that are coming. And we believe that this is going to be a big thing.”

Third quarter revenue will be US$61 billion to US$64 billion, Meta said, with the mid line of that range below the average analyst estimate of US$63.2 billion, according to data compiled by Bloomberg.

Meta shares fell as much as 10 per cent in after-hours trading after closing at US$585.61 on Wednesday in New York. The stock has declined 11 per cent so far in 2026.

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Meta is spending hundreds of billions of dollars to compete against American tech rivals, including Alphabet, OpenAI and Anthropic, in a race to develop leading AI models and products.

It is one of the tech industry’s heaviest spenders when it comes to AI data centres, just this week announcing a partnership with BlackRock on a US$14 billion complex in El Paso, Texas.

It is building another data centre in rural Louisiana that is expected to cost upwards of US$250 billion. 

In part because it does not yet have a cloud computing business and its AI products have at times been considered less competitive than some other AI labs’ work, Meta has faced recurring investor scepticism that it will recoup this spending.

Meta announced several new AI-related business lines in recent months, including a consumer chatbot subscription and a pay-to-use AI model for developers, though those are in early stages.

Cloud opportunity

On the call Wednesday, Zuckerberg teased another potential business line: A cloud computing business where Meta would sell computing power to other companies.

The CEO said that a “substantial” amount of Meta’s computing power currently goes toward training its own AI models, a necessity for being a leading AI lab.

But he also said that Meta has a “large number of offers” from companies interested in buying its computing power at a “meaningful premium” over what Meta spent to acquire it.

That has created an opportunity, he added, saying that Meta must now think through the trade-off of selling the computing power it has for a profit versus continuing to use it for its own products and services.

These calculations are happening at the same time that Meta is also buying computing power from independent data centre operators – so-called neoclouds – as well.

“There is just nowhere near enough compute for all of the demand,” he added when asked about the idea of Meta being both a buyer and seller.

Bloomberg earlier reported on Meta’s plans to develop a cloud computing business. 

Meta adjusted its full year capital expenditure forecast to US$130 billion to US$145 billion, slightly lifting the bottom end from a previous projection of US$125 billion to US$145 billion.

In one sign of the enormity of Meta’s AI investments, the company’s free cash flow in the second quarter fell to US$784 million, the lowest level since the third quarter of 2022, according to data compiled by Bloomberg.

Much of its investment is fuelled by advertising that Meta runs on its flagship social networking products, Facebook and Instagram.

Meta reported revenue of US$60.8 billion for the quarter ended Jun 30, slightly above the US$60.3 billion that analysts projected.

“Meta’s strong revenue growth will once again be overshadowed by its capital expenditure projections,” wrote Minda Smiley, a senior analyst at Emarketer.

“Even though Meta didn’t raise projections, that won’t stop investors from pressing for more information regarding plans for a potential computing business – and any other details on how Meta is thinking about monetising AI.”

The biggest US tech firms plan to spend as much as US$725 billion in 2026 on capital expenditures, mainly for AI infrastructure needed to build out data centres.

Google parent Alphabet said last week it had raised its capital spending forecast to as much as US$205 billion in 2026, sending the stock lower.

Across the board, investors have been squeamish about the companies’ AI spending, wary about where it will lead and whether it will ultimately pay off. 

Microsoft, which also reported earnings on Wednesday, said it intends to have US$175 billion in capital expenditures in its current fiscal year.

The software maker’s shares jumped, though, after it said cloud computing revenue in the most recent quarter rose 43 per cent, the fastest pace in four years.

Still, Zuckerberg projected confidence to end the company’s analyst call, predicting investors will ultimately benefit from Meta’s AI gamble. 

“My personal bet is that the people who invest in this are going to be rewarded and feel very good over time,” he said. 

Legal fees

Meta is facing other costs on top of its hefty AI investments.

The company narrowed its full year expense outlook on Wednesday to US$165 billion to US$169 billion, a jump meant to incorporate US$2.4 billion in penalties related to legal proceedings, according to a company filing.

Thousands of individuals and US school districts are suing Meta and other major social media companies over allegations that their products are addictive and harmful to minors.

Earlier this year, a jury found Meta and Google liable for a young woman’s mental health struggles, awarding her a total of US$6 million in damages in what was considered a litmus test for thousands of similar, pending complaints. 

In March, Meta lost a separate case in New Mexico alleging the company failed to protect children from online predators; jurors assessed a penalty of US$375 million, which the company continues to fight. BLOOMBERG