Meta grew Q2 2026 revenue 28% to $60.8bn but operating income fell 8% and diluted EPS fell to $6.18, as R&D rose 67%, a $2.40bn legal accrual and $1.18bn of severance hit costs, and 2026 capex guidance of $130–145bn pushed free cash flow toward zero.
Revenue
$60.8B
+28.0% YoY
Net income
$15.8B
-13.6% YoY
Diluted EPS
$6.18
-13.4% YoY
Operating margin
30.9%
Revenue grew 28%, profit fell 14% — Meta's AI spending is now outrunning its ad business
Meta Platforms' second quarter of 2026 (the three months to 30 June 2026) is the clearest example yet of a company whose top line is accelerating and whose profits are going the other way. Revenue rose 28% to $60.80 billion. Income from operations — what the business earns from running its apps and hardware, before interest and tax — fell 8% to $18.78 billion. Net income fell 14% to $15.85 billion, and diluted earnings per share fell to $6.18 from $7.14.
The gap is entirely on the cost side. Total costs and expenses rose 55% year over year, to $42.03 billion from $27.08 billion, against 28% revenue growth. Management's own summary of why: "increases in employee compensation, including severance expenses; infrastructure expenses related to our data centers, technical infrastructure, and third-party cloud services; legal-related costs; and third-party AI token costs."
Operating margin is the share of revenue left after paying to run the business, before interest and tax. Meta's fell from 43 cents on the dollar to 31 cents in a single year — the filing's own segment table rounds these to 43% and 31%.
Where the extra $15 billion of cost went
Three lines account for nearly all of the increase:
Research and development: $21.66 billion, up 67% — now 36% of revenue, against 27% a year ago. This is the single biggest swing, $8.71 billion of additional spending in one quarter. The filing attributes it to "higher employee compensation, infrastructure expenses related to our data centers, technical infrastructure, and third-party cloud services, and third-party AI token costs," with the compensation increase coming "mainly from increases in share-based compensation expense and severance expenses."
General and administrative: $5.61 billion, up 111% — driven, per the filing, "primarily" by "$2.40 billion of charges related to legal proceedings in the three months ended June 30, 2026." Meta does not attribute that accrual to a single named case in the MD&A; Note 9 lists a long roster of active privacy, antitrust and consumer-protection matters, including a New Mexico attorney general trial set to begin 8 September 2026 in which the state "has indicated that they intend to seek up to $62.85 billion in penalties."
Cost of revenue: $11.33 billion, up 33% — "primarily due to higher infrastructure expenses related to our data centers, technical infrastructure, and third-party cloud services."
Two of those items are not recurring at this size. The $2.40 billion legal charge is a one-off accrual, and employee compensation for the quarter includes "$1.18 billion of severance expenses related to the May 2026 headcount reduction of approximately 8,000 employees." Add both back and operating income would have been about $22.4 billion — 9% above last year's $20.44 billion, on 28% more revenue, for an underlying operating margin near 37% rather than the reported 31%. That is the honest version of the quarter: excluding the one-offs, profit still grew far slower than revenue. The infrastructure and AI-related spending, not the one-offs, is what changed the shape of this business.
The headcount reduction is a cost cut that has not shown up yet: reported headcount was 75,472 at quarter end, down 1% year over year, and "includes approximately 8,000 employees impacted by the May 2026 headcount reduction, the majority of whom will no longer be reflected in our headcount by the end of the third quarter of 2026."
Takeaway: Meta's advertising machine is working better than it has in years — 14% more ads shown at 12% higher prices — but the company is now spending the proceeds faster than they arrive. Operating profit fell on 28% revenue growth, and with 2026 capital expenditure guided to $130–145 billion against roughly $128 billion of first-half operating cash flow annualised, the constraint on Meta is no longer whether ads grow; it is whether AI infrastructure spending of this magnitude ever converts into earnings.
The ad business itself is in good shape
Under the cost noise, the core engine improved on both of the levers that matter. Ad impressions — the number of ads actually shown — rose 14% year over year, against 11% growth in the same quarter of 2025. Average price per ad rose 12%, against 9% a year earlier. Both accelerating at once is unusual: normally showing many more ads pushes the average price down.
The filing credits the price increase to "an increase in advertising demand, which we believe is mostly due to ongoing improvements to our ad performance from our ad targeting and measurement tools, and a favorable foreign currency exchange impact," partly offset by more impressions in cheaper geographies and formats such as Reels. Meta names "the online commerce vertical" as the largest single contributor to the increase in advertising revenue.
Two things temper the headline growth rate:
Currency helped. Meta also reports revenue in "constant currency" — recalculated using last year's exchange rates, to strip out the effect of a weaker dollar. On that basis Q2 revenue would have been $60.12 billion, $685 million lower, so constant-currency growth was 27% rather than 28%. Over the first half the effect is larger in dollars: $2.43 billion of the reported revenue is currency, not volume or price.
Growth is coming from users spending more, not from more users. Daily active people rose just 3%, to 3.60 billion, while average revenue per person rose 24% to $16.86. Meta notes the slight DAP dip in Q1 2026 was caused by "internet disruptions in Iran (which were largely restored in the second quarter of 2026), as well as a restriction on access to WhatsApp in Russia."
Regionally, revenue grew 32% in the US and Canada, 36% in Rest of World, 24% in Europe and 19% in Asia-Pacific. The strength in the highest-value region (US and Canada) rather than only in cheap-impression markets is the more meaningful part of that split.
One small but fast-growing line: Family of Apps "other revenue" — paid messaging on WhatsApp and subscriptions — reached $1.01 billion, up 73%. At 1.7% of total revenue it does not move the numbers yet, but it is Meta's only material non-advertising revenue that is actually compounding.
Reality Labs: unchanged, which is the point
Reality Labs (virtual and augmented reality hardware, software and content) generated $431 million of revenue, up 16%, "driven by higher sales of AI glasses, partially offset by lower Meta Quest sales," and lost $4.62 billion at the operating line — a loss 2% wider than a year ago. Over the first half the loss narrowed slightly, to $8.65 billion from $8.74 billion.
Management guides that "we expect our full-year 2026 RL operating losses to remain similar to 2025." Reality Labs is now the stable, budgeted part of Meta's spending. The volatility has moved to Family of Apps, where operating margin dropped from 53% to 39% and segment operating income fell 6% despite 28% revenue growth.
The cash picture: borrowing to build
This is where the scale of the infrastructure commitment becomes visible.
Capital expenditure, including principal payments on finance leases, was $31.08 billion in the quarter and $50.92 billion in the first half. Operating cash flow for the half was $64.09 billion, leaving roughly $13.2 billion of free cash — cash from operations minus capital spending — versus $49.59 billion of operating cash flow and far lower capex a year earlier.
Meta raised $24.91 billion of net proceeds from senior unsecured notes in May 2026, taking long-term debt to $84.00 billion of principal outstanding. Interest expense more than tripled, to $783 million in the quarter from $241 million.
No shares were repurchased in the first half of 2026 — against $25.03 billion still authorised. Meta bought back stock heavily in prior years; that capital is now going into data centres instead. Dividends continued, at $2.70 billion for the half.
Off-balance-sheet obligations are large and growing: $349.31 billion of non-cancelable contractual commitments (mostly cloud capacity, servers and data centres), of which $53.52 billion falls due in 2026 and $81.65 billion in 2027, plus $278.99 billion of leases that have not yet commenced — and a further roughly $68 billion of data-centre leases signed in July 2026, after quarter end.
$10.80 billion of money market funds was reclassified as restricted cash to satisfy "escrow requirements under certain multi-year infrastructure purchase agreements," not released until 2028–2030. That is cash Meta holds but can no longer use.
A subsequent event: in July 2026 Meta agreed to co-develop a data centre campus in El Paso, Texas through a venture in which it would hold a 20% interest, contributing about $2.3 billion of assets, receiving a roughly $1 billion distribution, leasing the resulting properties back and providing residual value guarantees of "up to approximately $13 billion." This is off-balance-sheet financing of capacity Meta will use — a structure worth watching if it becomes a pattern.
One accounting quirk worth flagging
Meta's first-half net income of $42.62 billion (up 22%) looks far better than the quarter's. It is flattered by tax. For the six months, Meta recorded an income tax benefit of $2.11 billion rather than a charge — an effective tax rate of −5% — "primarily due to the income tax benefit from U.S. Treasury Notice 2026-7, which provided relief from the CAMT related to the expensing of previously capitalized U.S. research and development costs." (CAMT is the US Corporate Alternative Minimum Tax.) That benefit landed in Q1 and is not repeatable. The quarter's own effective tax rate was 16%, up from 11%, because CAMT now limits other benefits Meta used to claim. Anyone anchoring on first-half profit growth is reading a tax one-off, not operating performance.
Outlook
What management said in the filing:
Capital expenditure of approximately $130 billion to $145 billion in 2026 "to support our AI efforts and core business."
Effective tax rate of 15–17% for the remaining quarters of 2026, absent tax-law changes.
Reality Labs full-year 2026 operating losses similar to 2025 (the $8.65 billion first-half loss puts the run-rate near $17 billion).
Infrastructure and AI investment will continue to increase: "we have significantly increased our infrastructure investments in connection with our AI initiatives... and expect our investments to continue to increase."
Our read. The revenue side of the story is not in doubt in the near term: impressions and price are both accelerating, US and Canada is the fastest-growing large region, and ARPP is compounding at 24% against 3% user growth, which means monetisation has room to run without needing new users. What is in doubt is the earnings line. Capital expenditure guidance of $130–145 billion compares with roughly $128 billion of annualised first-half operating cash flow, so 2026 free cash flow is likely to be near zero or negative even before dividends — which is why buybacks stopped and why Meta issued $25 billion of debt. Depreciation on this year's spending mostly has not started yet; as that capacity comes into service, it flows into cost of revenue and depreciation for years, meaning the margin pressure visible this quarter gets worse before it gets better even if spending stops growing.
The number to watch in Q3 2026 is Family of Apps operating margin, which fell from 53% to 39%. The $2.40 billion legal accrual and $1.18 billion of severance together are worth up to about 6 points of that decline (slightly less for Family of Apps alone, since the severance hit both segments) and should not repeat; the remaining eight-or-so points are structural infrastructure cost. If Q3 shows Family of Apps margin stabilising in the mid-40s once the one-offs drop out, this quarter reads as a spending peak. If it lands near 40% again on clean costs, then 28% revenue growth is no longer enough to hold Meta's profits flat — and that is the more consequential outcome, because Meta's ad growth is very unlikely to sustain 28% indefinitely while capital expenditure is contracted years forward through $349 billion of commitments.