Meta Platforms’ (NASDAQ:META) revenue grew 28% in fiscal Q2 2026, to $60.80 billion. Free cash flow (operating cash flow minus spending on equipment and finance leases) was $784 million, versus $8,549 million a year earlier.
The explanation is artificial intelligence. Meta makes its money selling ads across Facebook, Instagram, WhatsApp and Messenger, apps that reached 3.60 billion people a day on average in the quarter’s final month. Now it’s pouring that ad cash into data centers and a new AI product called Muse. Can the stock hold a premium multiple while the cash cushion thins? The answer depends on whether Muse becomes a business of its own, or just a bigger bill.
A Machine That Sells More and Charges More
A healthy ad business shows volume and price rising together, and Meta delivered both. Ad impressions across its apps rose 14% year over year in fiscal Q2 2026, and the average price per ad rose 12%. Daily users grew just 3%, so the growth came from extracting more value from attention Meta already had.
Advertising revenue reached $59.36 billion, and the Family of Apps segment earned $23.39 billion in operating income. Reality Labs, the virtual and augmented reality unit, lost $4.62 billion. One segment funds everything else. Meta’s AI rivals mostly run cloud businesses that can resell computing capacity. See which long-term leaders are tackling the same spending problem differently.
A Quarter Where Costs Grew Faster Than Sales
Expenses climbed 55% to $42.03 billion, and not all of it was AI. The total included $2.40 billion of legal charges and $1.18 billion of severance from layoffs. Operating income fell 8% to $18.78 billion, and operating margin dropped to 31% from 43%. GAAP diluted earnings per share were $6.18, down from $7.14.
Guidance looks ahead: third-quarter revenue of $61 billion to $64 billion, full-year expenses of $165 billion to $169 billion, and capital spending of $130 billion to $145 billion, with 2026 operating income still expected to top 2025’s. On Muse, BNP Paribas analyst Nick Jones sees strong early interest, helped by Meta’s built-in audience. His open question is whether that curiosity turns into regular use and meaningful revenue.
Is the AI Bill Getting Ahead of the Payoff?
The best bear case sits in the cash flow statement. Meta spent $31.08 billion on capital expenditures in the quarter, while depreciation and amortization, the part that actually reaches earnings, was $6.36 billion. Long-term debt stood at $83.66 billion, and no Class A shares were repurchased. Meta also warned that youth-related trials this year may ultimately result in a material loss. Cash and marketable securities of $90.26 billion buy time, not an answer. The spending still has to start earning.
A Premium Multiple on a Thin Cash Cushion
At 24.10 times expected earnings, as of October 6, Meta trades above its own 5-year average of 22.01 and well above the sector’s 12.82. Investors are paying about $24 for every $1 of expected earnings. The premium isn’t hard to explain. Ad volume and pricing are both rising, and revenue grew 28%. Expected EPS growth of 13.37% in 2027 is far slower than that sales pace, and that gap is likely where the buildout shows up.
The multiple also flatters the picture. Earnings absorb only depreciation, while cash pays the full capital bill. And Q2’s GAAP EPS already carried the legal and severance charges, so a clean earnings base is a judgment call. Weighed together, the stock looks full rather than cheap. Looking for stocks to invest in where growth and valuation are pulling in different directions? Here is a list worth a look. Hedge fund interest slipped, with 254 funds holding the stock in the most recent quarter, down from 262 in the prior one. Short interest sits at 1.41% of the float, which points to relatively limited bearish positioning.
What Would Have to Go Right
The evidence points to a stock priced for execution. A forward multiple of 24.10 asks Meta to keep growing ads briskly while Muse starts producing revenue that justifies the spending. That suits investors comfortable with thin free cash flow, legal overhang, and a multi-year AI payoff; it suits those wanting cash returns now less. A quarter inside the revenue guide, with free cash flow rebuilding, would strengthen the case. Capital spending above the top of its range, or a large youth-trial loss, would weaken it.
READ NEXT: Top 10 AI Stocks That Will Skyrocket and 2 Stocks Trump Bought in July Are Now Down 17% to 20%. Time to Buy?
