Meta Platforms (NASDAQ:META) fell 20% since July 15th, even though FQ2 2026 revenue beat estimates. Sales rose 28% year over year to $60.8 billion, ahead of the $60.3 billion Wall Street wanted, and ad impressions climbed 14%. Investors aren’t punishing Meta’s ad business, they’re punishing what it costs to run.
Why Did it Tank?
What soured the reaction was a mix of an earnings miss, EPS of $6.18 versus a $7.22 consensus, tied to legal and severance charges, and a capex number that keeps climbing. Guidance has moved three times since spring, most recently to $130 billion to $145 billion for the year, and free cash flow for the quarter came in under $1 billion once lease payments were counted in.
The more interesting wrinkle is what Meta didn’t lean into. Reports before earnings had Zuckerberg’s team in early talks to lease up to $10 billion of AI compute to Anthropic, a potential new revenue line that would have given the market exactly the kind of proof point it wanted: evidence the AI spend can generate cash beyond powering Meta’s own apps. On the call, though, management was notably cooler on turning spare data center capacity into a broader cloud business, saying it still prefers running its own chips internally where returns are higher.
Zuckerberg tried to reframe the spending story on the call, saying Meta is fielding offers to buy its compute capacity “at a significant premium,” but investors were left weighing that upside against a guidance cut arriving alongside the company’s biggest AI bill yet. Meta guided third quarter revenue to $61 billion to $64 billion, below the $63.2 billion analysts had modeled. Free cash flow told an even starker story, falling 90% year over year to just $784 million.
Charts
Weighing Meta Against Microsoft and Amazon
Microsoft (NASDAQ:MSFT) reported the same night and had an easier time of it. Azure grew 43%, its fastest pace since 2022, beating the roughly 40% analysts expected. That gap in reaction, Meta down double digits, Microsoft up, says less about who spent more on AI and more about who showed proof it’s paying off.
Amazon.com (AMZN) also reported strong AWS top line results last night and the stock is up more than 15% this morning.
Hedge funds seem to have favored Meta over Microsoft in Q1 2026. Meta’s fund count rose to 262 in the first quarter of 2026 from 256 the quarter before, while Microsoft’s fell to 282 from 312. On valuation, Meta is the cheaper of the two. Its forward P/E sits around 18, versus roughly 20 for Microsoft. However, Meta is carrying the heavier bearish bet of the two. Its short interest sits at about 1.72% of its float, compared with roughly 1.24% for Microsoft.
Can Meta Make a Comeback?
Meta’s ad business is growing at a rate that rivals would envy. What’s missing is Microsoft’s kind of proof, a number like AWS’ or Azure’s growth rate that shows the AI spend turning into revenue rather than sitting on the balance sheet. We have seen this movie before. Zuckerberg insisting on investing billions of dollars into metaverse and Meta’s stock declined from roughly $360 to under $90 between September 2021 and November 2022. The collapse bottomed out on November 4, 2022, when the price hit a multi-year low of $88.09 per share.
The stock subsequently staged a massive turnaround beginning in 2023 when Zuckerberg pivoted to a “Year of Efficiency,” implementing heavy budget cuts and shifting capital focus toward artificial intelligence. META’s current data center ambitions won’t be as useless as its metaverse investments. If it chooses so, META can easily monetize these investments and reverse the declines in its stock price. We just don’t know when Zuckerberg is going to come to his senses. META currently trades at 16 times its forward earnings, an extremely low multiple for a company growing at 28%. It will probably outperform the market in the long-term, but META shareholders may or may not experience more short-term pain.
While Insider Monkey acknowledges the risk and potential of META as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than META and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None.
