Meta's Free Cash Flow Fell 91%. Why I'm Still Bullish on the Selloff.

Meta's earnings exposed the market's core AI tradeoff

This sell-off was a stress test, and the trigger was blunt. Meta posted free cash flow of just $784 million, down 91% from a year earlier, and the stock fell 9% in premarket trading. The question investors now had to answer was straightforward: Is Meta converting today's heavy cash spending into better returns next year, or is AI becoming an expensive distraction from the ad engine?

The bear case is not hard to see. Meta guided to third-quarter revenue of $61 billion to $64 billion, and the midline of that range came in below the average analyst estimate, leaving room for doubt. Management has also pointed to capex of as much as $145 billion. At that scale, profit margins can stay under pressure for a while before the payoff shows up. If those AI bets do not eventually improve ad performance, engagement, or monetization, the market will keep treating the spending as a cash sink.

The stock's rebound suggests investors still see a payoff pathway

The more constructive signal was how the market reacted once the initial shock wore off. Instead of a full breakdown, Meta shares rallied about 15% for the week and ultimately finished up 17% over the next week. That rebound suggests investors are willing to tolerate near-term cash burn if they believe the spending can strengthen the business over time.

That is why I can still justify a bullish stance here, but with a caveat. This looks more like a strong-buy setup for investors who can handle short-term margin pressure while Meta tries to turn AI spending into better returns from ads, new products, and possibly compute rentals. If you wait for perfect proof, you may also miss the rerating window.