Meta's stock price plummets: Why has the company become Wall Street's "abandoned child"?

Meta's stock price fell on Thursday following the release of its second-quarter earnings report.

Meta Platforms' stock came under pressure on Thursday as investors hesitated over its massive spending on artificial intelligence, coupled with uncertainty regarding its investment plans for next year.

The tech giant's stock dropped 9.7% in early trading on Thursday, with Evercore ISI analyst Mark Mahaney noting that the "lack of forward guidance" on spending in 2027 was one of the factors weighing on the stock price.

The tech giant has once again raised its capital expenditure plans for 2026, disclosing in its second-quarter earnings report that the current expected range is between $130 billion and $145 billion, up from the previous guidance of a low end of $125 billion.

Meta's Chief Financial Officer Susan Li stated that the company expects to face "demand constraints" in the foreseeable future, including in its core business areas, adding, "We still have many areas with positive returns on investment, and we will invest if there is computing power." She was referring to the return on investment.

Mahaney indicated that investors also reacted to the lack of details regarding Meta's advancements in cutting-edge AI models. He mentioned CEO Mark Zuckerberg's comments about the company "expanding larger and more advanced models," which Mahaney described as "providing only qualitative descriptions."

Additionally, Mahaney noted that Meta's statement prioritizing the sale of AI over computing power may not be well-received by investors. Before the earnings report, investors had been excited about reports that Meta might begin establishing external cloud services similar to those offered by Microsoft, Alphabet, and Amazon.

However, Zuckerberg stated during the earnings call that although Meta "received numerous offers to purchase computing power at a premium far above our purchase price," the company still believes that prioritizing the sale of its own AI products has a higher profit margin than selling access to computing power. He mentioned that the company might turn to providing computing power access services to large clients in the future.

Mahaney believes that sticking to the current path means Meta is forgoing opportunities to increase revenue and free cash flow in the near term, which could offset some of the additional capital expenditures.

Meta's free cash flow for the second quarter was $784 million, a significant decline from $8.55 billion in the same period last year.

Finally, Mahaney stated that investors want to see monetization proof in non-advertising business areas. Although the Meta Business Suite launched in the second quarter now has over 1 million monthly business users, Mahaney said it is too early to assess the impact of this product on Meta's revenue. He added that personal agents are still under development.

Overall, Mahaney stated that the core business looks strong, but as AI investments continue to rise, "the market needs evidence of monetization in non-core businesses... but currently, there is no evidence."

MoffettNathanson analyst Michael Nathanson pointed out that Meta's operating profit margin "continues to shrink, with no end in sight." He attributed this to increased depreciation and the establishment costs of the Meta Super Intelligence Lab launched last year Meta's operating profit margin for the second quarter was 31%, a decrease of 10 percentage points from 43% in the same period last year. The company stated that the significant increase in expenses for the quarter was related to legal and severance costs; excluding these expenses, operating income would have grown by 9%.

Nathanson stated in a report to clients: "It is obvious and undisputed that Meta's use of AI in its core applications and advertising products is yielding significant benefits."

However, he noted that as the company "transitions from a light asset model to a heavy asset model," the focus should be on its return on invested capital