The AI trade is coming to a realization: America’s best businesses are turning into utilities.
Such is the fate that befalls Meta, whose shares fell as much as 10% in after-hours trading Wednesday after the company missed earnings owing to costs ballooning 55% (Meta’s stock later recovered some ground and was down 7%). Its operating income fell 8%, net income dropped 14%, and it barely eked out $784 million of free cash flow—just narrowly missing falling into negative territory and well below the roughly $12 billion in free cash flow the company has averaged over the previous eight quarters.
Meta’s revenue in Q2 was up 28% from a year earlier, beating expectations, but operating income for Family of Apps, the segment containing Facebook, Instagram, WhatsApp and Messenger, fell to $23.4 billion from $25.0 billion.
So its core business grew revenue but made less money doing it.
And the money that the company is earning is immediately being used—with most of it not going to investors. The reason why is the term investors have come to love to hate: capex. Capital expenditure is now up to $31.1 billion in the quarter, nearly double the amount spent a year earlier. Operating cash flow came to $31.9 billion; in other words, the company spent almost every dollar its businesses could generate on AI infrastructure: servers, data centers, network infrastructure, and chips.
