Meta Stock Drops After Earnings Miss as AI Spending and Legal Costs Weigh on Profit

Meta Platforms (NASDAQ: META) shares fell 8% in after-hours trading after the social media giant reported second-quarter earnings that missed Wall Street expectations and issued weaker-than-expected third-quarter revenue guidance. While advertising revenue remained strong, rising legal expenses, restructuring costs, and heavy artificial intelligence investments pressured profitability.

Meta posted second-quarter earnings per share of $6.18, below analysts’ forecast of $7.17. Revenue climbed 28% year over year to $60.8 billion, beating the consensus estimate of $60.19 billion, driven by robust advertising demand. Ad impressions increased 14%, while the average price per ad rose 12%. Family daily active people also grew 3% to 3.60 billion in June.

However, total costs and expenses surged 55% to $42.03 billion, reflecting $2.4 billion in legal charges and $1.18 billion in severance expenses tied to the company’s workforce reduction announced in May. The higher costs contributed to a 14% decline in quarterly profit despite strong top-line growth.

For the third quarter, Meta expects revenue between $61 billion and $64 billion, compared with Wall Street estimates of $63.24 billion. The company also raised the lower end of its full-year expense forecast to $165 billion-$169 billion to account for legal charges incurred during the second quarter.

Chief Executive Officer Mark Zuckerberg said artificial intelligence is strengthening Meta’s core business, enabling new products and creating long-term opportunities across consumer and enterprise markets.

Meta continued investing aggressively in AI infrastructure, spending $31.08 billion in capital expenditures during the quarter. Free cash flow dropped sharply to $784 million from $8.55 billion a year earlier, highlighting the financial impact of its expansion strategy. The company also narrowed its 2026 capital expenditure outlook to $130 billion-$145 billion from the previous range of $125 billion-$145 billion.

According to Ryan Lee, SVP of Product and Strategy at Direxion, Meta’s elevated capital spending may pressure near-term cash flow but could ultimately benefit semiconductor companies and the broader AI supply chain as demand for advanced infrastructure continues to grow.