Meta Platforms stock is trading at $694.25, stuck below the $730 level where it has repeatedly stalled. The company's advertising business remains a cash generator, but massive artificial intelligence spending is consuming its free cash flow. Investors are now waiting to see if that spending starts to pay for itself in the upcoming earnings report.
Meta’s apps, including Facebook, Instagram, Messenger, and WhatsApp, reach 3.60 billion people daily. Advertising accounts for nearly all of the company's revenue. While shares closed at $597.37 on the day of the second-quarter report, they have since risen, though they fell 8.95% over the past week from $762.50.
The ad engine continues to grow. Second-quarter ad revenue rose 27% to $59.36 billion. This increase came from serving 14% more ad impressions and charging 12% more per ad. Meta's AI-driven ad product, Advantage Plus, has passed a $75 billion annual revenue run rate. Even after removing one-time legal charges and severance costs, operating income would have increased by 9%.
However, the cost of building out AI infrastructure is straining the balance sheet. Meta expects to spend $130 billion to $145 billion on capital expenditures in 2026, a significant jump from $72.22 billion in 2025. Consequently, free cash flow in the second quarter plunged to $784 million, down from $8.55 billion in the same period last year. Operating margins contracted to 31% from 43%, while long-term debt climbed to $83.66 billion.
Diluted earnings per share came in at $6.18, missing the consensus estimate of $7.22 and ending a six-quarter streak of beats. Management cited one-time items, including $2.4 billion in legal charges and $1.2 billion in severance, as drivers of the weakness. The company also warned that U.S. trials related to youth usage could result in material losses.
Analysts are divided on the path forward. The 63 analysts covering Meta set an average price target of $819, which implies about 18% upside from current levels. However, Meta is up 5.43% year to date, lagging the S&P 500's gain of 12.78%. Over the past year, Meta shares are down 4.87% while the broader index is up 14.56%.
For the stock to clear the $730 plateau and stay there, three specific outcomes are needed in the next quarter. First, third-quarter revenue must land toward the top of the $61 billion to $64 billion guidance range. Second, operating margin needs to recover toward the 40% range as one-time charges drop out. Third, Meta must provide a 2027 capital expenditure outlook that shows spending leveling off.
Past earnings beats have not guaranteed stock gains. After the first-quarter report, when EPS beat estimates by 56.79%, the stock actually fell 8.55%. Investors appear to be prioritizing cash flow recovery over top-line earnings surprises. The company has not provided guidance for 2027 capital expenditures, making long-term cash flow forecasts difficult.
The bull case relies on free cash flow recovering and evidence that the 1 million businesses using Meta's AI agents weekly are generating new revenue. The bear case hinges on slowing ad pricing or costly legal outcomes in youth trials. The advertising business is strong enough to limit downside risk, but heavy spending caps the upside potential until returns become visible in the financial statements.