Meta Platforms faces increasing pressure to justify its substantial investment in artificial intelligence amid signs the company’s financial position is becoming strained. The social-media giant expects to spend approximately $137.5 billion on capital expenditures this year, a level of outlay that analysts suggest will push the company into negative free cash flow territory in the second half of 2024, marking the first such occurrence since Meta’s initial public offering in 2012.
The scale of Meta’s AI-related spending dwarfs those of many peers, though it shares the broader industry challenge of heavy financial outflows driven by infrastructure expansion. Amazon and Alphabet have also increased capital investments significantly to pursue AI ambitions, with Alphabet raising its capital expenditure forecast by $10 billion this year. However, Meta’s revenue base, heavily reliant on advertising, is smaller than these competitors, leading to heightened concerns about its capacity to sustain the spending.
Meta reported a 28 percent increase in second-quarter revenue, largely driven by its core advertising business, which remains healthy and a critical source of funding for its AI investments. Despite this growth, the company’s profit figures fell short of market expectations, prompting a 10 percent drop in its stock price during after-hours trading. The company has also raised the midpoint of its capital-spending forecast through 2026, signaling continued aggressive investment.
Analysts warn that projections for Meta’s capital expenditures may be conservative. Deutsche Bank estimates that Meta’s outlays could reach up to $215 billion next year, while Raymond James forecasts an even higher $280 billion. These projections are linked to plans to double Meta’s computing capacity from seven gigawatts in 2024 to fourteen in 2025.
Meta’s financial profile has also shifted markedly with increased borrowing to fund its AI infrastructure. While the company had minimal debt before 2022, long-term borrowings reached $83.7 billion by the end of the second quarter, excluding significant off-balance-sheet liabilities tied to large data-center projects in Louisiana and Texas. The rising cost of debt is evident in the performance of Meta’s 40-year bonds, which now yield around 7 percent after a substantial drop in price.
In response to mounting investor concerns, Meta is pursuing new revenue streams beyond advertising. It has begun offering premium subscription features on its platforms and recently opened paid access to its advanced Muse Spark AI model for external developers. Meta is also marketing AI-powered services such as chatbots to businesses and exploring opportunities in cloud computing by leasing excess data-center capacity. CEO Mark Zuckerberg highlighted potential demand for Meta’s computing power at a premium price point.
Analysts see these initiatives as promising but early-stage efforts. While cloud computing revenue could grow substantially by 2030, Meta currently lacks a strong presence in corporate software and faces reputational challenges that may limit business adoption. The company may also focus on leasing infrastructure to a limited number of large AI users rather than competing broadly with established cloud providers like Amazon, Google, and Microsoft.
Chief Financial Officer Susan Li indicated that Meta’s spending might plateau or decrease only after 2028, with current priorities focused on maximizing computing capacity over the next two years. However, investor patience appears thin, with mounting expectations that Meta’s substantial AI investments begin to yield financial returns sooner rather than later.