Street View: Meta's AI push to weigh on free cash flow as investors seek returns
META•Rivals have a cloud revenue buffer
Josh Gilbert, lead analyst for APAC and Middle East at eToro, said Meta's AI spending lacks the cloud revenue buffer enjoyed by rivals such as Microsoft, Alphabet and Amazon, leaving its core advertising business to fund a growing data center buildout and AI investment push.
Morningstar (fair value: $850) sees Meta actively pursuing excess compute-selling as a revenue stream in 2027 amid existing compute constraints among AI labs.
Meta's AI spending weighs on free cash flow
Meta Platforms reported a 91% drop in second-quarter free cash flow on Wednesday, underscoring the financial strain of the social media giant's costly AI buildout amid an uncertain payoff.
Shares were down 8.5% to $536.06 in premarket trading.
Analysts focus on AI monetization and cash flow
Scotiabank ( sector perform , PT: $600) says investors are likely to focus on AI monetization and the sustainability of free cash flow until companies like Meta show meaningful AI revenue to justify surging AI spending.
"The key question is no longer whether AI will generate revenue, but whether that revenue can scale quickly enough to justify current spending levels," Scotiabank said.
J.P. Morgan ( neutral , PT: $640) said Meta's heavy AI spending is likely to pressure free cash flow, even as investors await clearer signs of AI monetization and greater visibility on future spending plans.
