Meta shares fall 6% as AI spending drives negative free cash flow

The social-media giant posted free cash flow of negative $2.12 billion for the quarter, while raising its 2026 full-year capex guidance to a range of $135 billion to $145 billion, up from a previous floor of $130 billion. Revenue rose 26 per cent year on year to $64.60 billion, exceeding the $63.37 billion analysts expected. Earnings per share came in at $3.83, though the company noted it was not directly comparable to the $5.75 consensus forecast.

The spread on Meta's five-year credit default swaps reached all-time highs on Thursday, a sign of growing credit unease as the company doubles down on AI infrastructure spending.

Meta also announced it would create a new class of nonvoting Class C common stock, a move the company said would preserve its "founder-led structure" and provide flexibility to finance growth. In a Securities and Exchange Commission filing, Meta disclosed that chief executive Mark Zuckerberg could leave the state if California's proposed "Wealth Tax" were to pass, saying he "could become liable for a significant, multi-billion-dollar tax payment". The filing added that Zuckerberg was convinced to stay in California with the new stock plan.

Analysis

Why This Matters

Meta's shift to negative free cash flow marks a turning point for a company that has long generated strong cash returns, raising questions about return on investment from its AI buildout.
The rise in credit default swap spreads signals that bond markets are starting to price in higher risk, which could raise borrowing costs for a company that plans to spend heavily.
The creation of a new nonvoting stock class and Zuckerberg's threatened departure over tax policy highlight tensions between corporate governance, founder control, and state fiscal policy.

Background

Meta has been investing heavily in artificial intelligence and data centre infrastructure, competing with Microsoft, Google, and other tech giants. The company's capital expenditure has surged over the past year as it builds out computing capacity for AI model training and inference. Investors have grown increasingly sensitive to the returns from these investments, with some questioning whether the spending will translate into sustained revenue growth.

Key Perspectives

Investors: Concerned that rising capex and negative free cash flow signal a prolonged period of heavy spending without clear profitability, reflected in the stock drop and CDS spread widening. Meta management: Argues that the AI investments are necessary to maintain competitiveness and that the new stock class provides long-term flexibility. The revenue beat suggests the core business remains strong. California policymakers: The prospect of Zuckerberg leaving over a wealth tax highlights potential unintended consequences of proposed tax legislation on high-wealth individuals and corporate headquarters decisions.

What to Watch

Meta's free cash flow trajectory in the coming quarters as capex continues to ramp.
Whether the new Class C stock issuance is approved by shareholders and how it affects voting control.
The fate of California's Wealth Tax proposal and any related moves by other tech founders.
Full-year 2026 capex actuals versus the new $135 billion-$145 billion guidance.

Checked

10 claims in this story checked against 1 source: 7 supported.

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SupportedMeta shares fell about 6% as AI spending pushed free cash flow negative.US Top News and Analysis: “Meta shares slumped roughly 6% on Thursday as the social media giant showed negative free cash flow in its third-quarter earnings”
SupportedMeta raised the lower bound of its full-year capex forecast to $135 billion.US Top News and Analysis: “Meta said it expects its full-year capex to range from $135 billion to $145 billion, raising the bottom of the range from a previous $130 billion to $145 billion.”
Partly supportedThe new Class C stock is intended to preserve Zuckerberg’s control.US Top News and Analysis: “The company revealed Wednesday that it would create a new class of nonvoting Class C common stock during its earnings release, meant to maintain its "founder-led structure"”
Not in the sourcesThe capex guidance is for 2026.
SupportedMeta reported negative free cash flow of $2.12 billion for the quarter.US Top News and Analysis: “Free cash flow came in at a negative $2.12 billion during the quarter.”
SupportedRevenue rose 26% year on year to $64.60 billion, above analysts’ $63.37 billion expectation.US Top News and Analysis: “Revenue for the social media giant jumped 26% in the third quarter from a year ago, coming in at $64.60 billion versus the $63.37 billion analysts expected.”
Partly supportedMeta said its $3.83 earnings per share was not directly comparable to the $5.75 consensus forecast.US Top News and Analysis: “Earnings per share were reported at $3.83, though it wasn't clear if it was directly comparable to the $5.75 per share Wall Street was looking for.”
SupportedThe spread on Meta’s five-year credit default swaps reached an all-time high on Thursday.US Top News and Analysis: “The spread on the social media giant's five-year credit default swaps reached all-time highs on Thursday”
SupportedMeta said Zuckerberg could leave California if the proposed Wealth Tax passed.US Top News and Analysis: “Meta also said CEO Mark Zuckerberg could leave the state if the "California Wealth Tax" were to pass”
SupportedThe SEC filing said Zuckerberg was convinced to stay in California with the new stock plan.US Top News and Analysis: “Zuckerberg was convinced to stay in California with the company's new stock plan, the filing noted.”