Meta Bleeds Cash as $1.2 Trillion AI Arms Race Hits Wall Street

Silicon Valley’s bet on artificial intelligence infrastructure is accelerating toward a $2 trillion cumulative spend over the next two years, and Meta Platforms just provided the latest evidence that free cash flow will be an early casualty. The company reported negative $2.1 billion in free cash flow for the third quarter, down from positive $784 million in the second quarter and $10.6 billion a year ago.

That red ink reflects a broader capital expenditure shockwave moving through the technology sector. According to Melissa Otto, global head of Visible Alpha research at S&P Global Market Intelligence, industry-wide capex is projected to hit $790 billion in 2026—nearly double the $404 billion expected this year. By 2027, that figure climbs to $1.2 trillion.

Meta alone spent $34.9 billion on capital expenditures during the third quarter, up sharply from $19.4 billion a year ago and $31 billion in the prior three-month period. The company narrowed its full-year spending guidance to between $135 billion and $145 billion, raising the floor from its previous estimate of $130 billion. Consensus estimates for 2026 capex have already jumped more than $14 billion since April to roughly $140 billion, Otto noted, with investors demanding clearer timelines for when that outlay converts into shareholder returns.

Top-line growth has not stalled. Third-quarter revenue climbed 26% year-over-year to $64.6 billion, beating the $63.3 billion consensus tracked by S&P Global Market Intelligence. Net income reached $9.9 billion, or $3.83 per share. Chief Executive Mark Zuckerberg pointed to the rollout of new tools, including the public launch of Muse Wonder by Meta’s Superintelligence Labs last week, as evidence of momentum. “Our investments are paying off, the core business is strong, and we’re seeing velocity across the board,” Zuckerberg said in a prepared statement Wednesday.

Investors bought the thesis. Shares rose more than 4% in after-hours trading, shrugging off a severe compression in operating margins.

Core profitability metrics took a hit from litigation costs rather than operational weakness. Operating income dropped to $13 billion from $20.5 billion a year ago, missing the $16.9 billion analysts expected. Operating margin contracted to 20%, down from 31% last quarter and 40% a year earlier. A $10 billion charge tied to a youth safety settlement with state attorneys general accounted for much of the gap. Without it, operating income would have been $22.9 billion and earnings per share $7.40. Under the settlement terms, Meta faces approximately $18 billion in payments to states over the next decade, contingent on cooperation from TikTok and YouTube.

Legal exposure continues to compound. Hours before the earnings release, a New Mexico judge ordered Meta to pay $25 billion in penalties connected to the Cambridge Analytica data privacy scandal, following a jury finding of more than 43 million violations. The statutory maximum could have approached $220 billion. The company plans to appeal.