Meta profit falls 14%, stock drops 9% as Zuckerberg predicts billions will have AI agents

Earnings miss and spending surge

Meta reported second-quarter revenue of $60.8 billion, up 28% from a year earlier, but costs jumped 55% to $42 billion, pushing profit down 14% to $18.3 billion. Free cash flow collapsed 91% to $784 million, down from $8.55 billion a year earlier. Reality Labs, the division responsible for AI and metaverse work, lost $4.6 billion in the quarter, bringing cumulative losses since 2021 to roughly $88 billion.

Meta raised the lower end of its 2026 capital expenditure forecast to $130 billion, up from $125 billion in April, and is likely to pour more than $140 billion into AI this year alone. The company and BlackRock also announced a $14 billion data-centre partnership in El Paso, Texas. Analysts polled by LSEG estimate Meta may invest nearly $750 billion over the next five years in pursuit of AI "superintelligence."

Stock market reaction

Shares fell 9% in after-hours trading, near their second-lowest level in a year. Investors were spooked by rising expenses and the lack of a clear timeline for returns on AI investments. The sell-off echoed Alphabet's first-ever cash-flow-negative quarter a week earlier.

People think AI spending is supposed to slow down, but who's going to be the first company to blink?

The contrast with Microsoft and Amazon was sharp. Microsoft shares hit a six-month high after showing strong revenue growth and adoption of its core AI tool. Tracy Woo, an analyst with Forrester, said Microsoft's massive AI investments were "beginning to deliver returns." Amazon's stock reached its highest price in two months despite plans to spend $220 billion on AI this year.

Zuckerberg's AI agent vision

On the earnings call, Mark Zuckerberg made his boldest prediction yet: within five years, "billions of people" will each have a personal AI agent that understands their goals and works on their behalf around the clock, handling finances, health, relationships and household tasks. He cast WhatsApp and Messenger as the primary surfaces where people will interact with these agents.

I think that it's extremely unlikely if you look out five years from now that you don't have billions of people with a personal agent that understands your goals and that is just working on your behalf 24/7 to achieve your goals in whatever the domain is that you care about.

Meta already runs AI agents for businesses on its messaging apps, reaching more than a million business users this quarter. The consumer version is meant to become a revenue stream large enough to justify the enormous infrastructure spending. Zuckerberg conceded earlier this year that AI-agent progress had been slower than he had hoped, making the five-year forecast a notable bet on a sharp acceleration.

AI's impact on engagement and new apps

Meta said AI-driven recommendations are increasing time spent on its platforms. Global time on Instagram grew by double digits year-on-year in the second quarter, and a reworked Reels system lifted sessions by 15 basis points. Video time surged on both Instagram and Facebook. The company now runs every public Reel and post through a large language model to analyse its topic and tone, which Zuckerberg called "a key building block toward greater personalization."

AI is also speeding up app development. Meta recently shipped Instagram Instants, a standalone Groups app called Forum, and a Marketplace app called Seller. Zuckerberg said more apps are planned, using recommendation systems to scale them. Threads, the company's microblogging platform, has reached 500 million monthly active users, a rare success after years of failed standalone app experiments.

Legal and regulatory backdrop

The engagement gains come with legal risk. Meta booked a $2.4 billion legal charge in the quarter, and a group of US states is pressing claims that its products are designed to keep young people hooked. The same metrics the company celebrates as personalisation are being framed by litigants as evidence of engineered compulsion.

Meta's core advertising business remains dominant, generating 98% of revenue. The company served 14% more ads than a year ago and charged 12% more on average. Instagram users spent more than 10% longer on the app. Zuckerberg said AI is "accelerating every major part of our core business," but the path from that acceleration to a return on the tens of billions being spent each quarter remains undefined.