Meta stock drops 10% as free cash flow gets crushed—and Zuckerberg hints at launching cloud business with few details

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 due 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 just $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 at 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—and most of it is not going to investors. The reason why is the term investors have come to love-to-hate: Capex. Capital expenditure now is up to $31.1 billion in the quarter, nearly double the amount spent the year earlier. Operating cash flow came to $31.9 billion; in other words, the company spent almost every dollar of cash its businesses could generate on AI........

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