AI capex: Microsoft outspent Meta and still has cash left

AI capex: Microsoft outspent Meta and still has cash left

$784 million. That is the free cash flow Meta generated in the second quarter of 2026, against $8.5 billion a year earlier. A 91% collapse in twelve months.

The reflex explanation is that Meta is outspending everyone else on AI. It doesn't hold. Over the exact same quarter, Microsoft spent more, and ended it with $19.6 billion in hand.

Two press releases, one quarter

Both companies reported on the evening of July 29, after the Wall Street close. The calendar cooperates for once: Microsoft's fiscal fourth quarter and Meta's second quarter cover precisely the same three months, ended June 30, 2026. No adjustment needed to put them side by side.

On infrastructure, Microsoft booked $35.8 billion of capital expenditure for the quarter, up from $17.1 billion a year earlier. Meta booked $30.1 billion of capex, plus $962 million of principal payments on finance leases, so $31.1 billion all in.

On free cash flow, the lines split. Meta publishes the number itself, as a reconciled measure in its release: $784 million, against $8,549 million a year earlier. Microsoft publishes no free cash flow line at all. Apply the standard definition and its $55,441 million of operating cash flow minus $35,802 million of capex gives $19.6 billion. That calculation is ours, and we are laying out the arithmetic so anyone can redo it.

Twenty-five times the free cash flow, for $4.7 billion more spent.

What actually separates them: knowing who gets the invoice

Microsoft builds data centers and resells access to them. Every dollar of concrete and silicon turns into capacity rented to customers who sign. The release puts a number on those signatures: the commercial bookings backlog reached $678 billion, up 84% year over year. That is money customers have contractually committed to pay.

Meta builds data centers too, and fills them with its own models. The capacity ranks Facebook and Instagram feeds, targets ads, runs its assistants. It creates value, it does not create an invoice: there is no customer at the other end of the cable, there is Meta.

Picture two developers putting up the same building on the same street for the same price. The first has leases signed before the foundation is poured. The second moves its own staff in. A year later they have spent the same money, and only one of them is collecting rent.

The quarter AI started running on debt

The most revealing line in Meta's release isn't in the income statement, it's in the cash flow statement. In this quarter alone, the company raised $24.9 billion of net long-term debt. A year earlier, that same line read zero.

Long-term debt now stands at $83.66 billion as of June 30, against $90.26 billion of cash and marketable securities. Solvency isn't the issue here. The shift is: AI capex has moved from self-funding to borrowing.

We saw the same slide one rung down the chain when Nebius borrowed $775 million against its GPUs. What was playing out at a mid-sized operator is now showing up in the accounts of a company pulling in $60.8 billion of quarterly revenue. A credit card is still a credit card, whether the limit is a thousand dollars or twenty-five billion.

Meta also tightened its 2026 spending range from the bottom, moving from $125 to $145 billion up to $130 to $145 billion, finance leases included. The floor rose, the ceiling didn't.

What Microsoft isn't putting in the headline

Two caveats, otherwise the contrast turns into a morality tale.

First: Microsoft's free cash flow is falling too. $19.6 billion this quarter against $25.6 billion a year ago, down 23%. AI capex weighs on both companies. The gap is one of magnitude, not of nature.

The second one teaches more. Microsoft reports diluted earnings per share up 32%. The same release specifies that, adjusted for the effects of its OpenAI stake, the figure is 23%. Nine points of growth therefore come from how Microsoft accounts for its AI bets, not from selling AI.

On top of that sits a $3.2 billion gain on its stake in Anthropic. It is booked below the operating income line, in other income, so it touches neither revenue nor operating margin. It explains a good share of the distance between this quarter's results and the guidance the company issued in April.

None of this is irregular or hidden: it is spelled out in the release, and Microsoft even publishes the adjusted version. But when you read that AI is finally paying off at Microsoft, it is worth knowing that part of the proof is an asset revaluation.

What holds true on both sides

Azure grew 43% in the quarter and passed $100 billion of annual revenue for the first time over the fiscal year. Microsoft 365 Copilot is now above 30 million paid seats. That is operating performance, and it is massive.

None of which makes Meta a company in trouble. Revenue is up 28% to $60.8 billion, net income comes in at $15.8 billion, and operating margin holds at 31%. It was 43% a year earlier, and that compression is exactly what an investment of this size produces while it has nothing billable on the other side of it yet.

"AI is accelerating our core business today", Mark Zuckerberg said as he presented the results. He is probably right. Accelerating your core business and getting someone else to pay for it remain two separate exercises, and only one of them shows up in a cash flow statement.