Facebook parent Meta reported profits on Wednesday (local time) that fell short of Wall Street expectations, as the cost of staying in the race to deploy artificial intelligence, along with hefty legal and severance charges, hurt its bottom line.The social media giant said net income dropped 14 percent from a year earlier to US$15.8b (NZ$27.3b).Revenue, however, climbed 28 percent to US$60.8b (NZ$105.2b), beating estimates and underscoring the continued strength of its advertising business.Shares in Meta were down as much as 12 percent in after-hours trading, a sign of analyst scepticism over the scale of the company's AI spending.Its results contrasted with those of Microsoft, another tech giant that has faced investor doubts but beat analyst expectations on Wednesday, driven by its cloud and artificial intelligence businesses.At Meta, the profit decline was driven largely by one-time items, including US$2.4b (NZ$4.2b) in charges tied to legal proceedings and US$1.2b (NZ$2.1b) in severance from a round of layoffs in May.Meta has been fighting court and regulatory battles around the world, including one in which a California jury in March ordered Meta and Google to pay US$6 million (NZ$10.4m) to a 20-year-old woman who said the platforms had addicted her as a child.The decision was a first-of-its-kind verdict that could be echoed in thousands of similar cases against Meta still pending.Meta reaffirmed that it would keep spending heavily on the data centres and chips underpinning its AI effort, telling investors it now expects capital expenditure of US$130b to $145b (NZ$225b to $251b) this year, nearly double what it spent in 2025 and slightly higher than its last forecast."AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities," chief executive Mark Zuckerberg said in a statement.Meta head Mark Zuckerberg.AFP'Meaningful premium'The new opportunities referred to Meta's plan to launch a cloud computing business that would rent out its vast computing power to outside customers."We have quite a number of offers at a meaningful premium over what we paid for the [computing power]," Zuckerberg said on a call to analysts after the earnings report.This would offer a new revenue stream, echoing a strategy Elon Musk's SpaceX has used to help finance its own AI infrastructure.Unlike rivals Amazon, Microsoft and Google, Meta has never sold cloud services externally.Zuckerberg's optimistic, positive tone on AI's business possibilities stands in stark contrast to the negative sentiment that's building toward social media companies over claims that they've harmed and addicted kids, said Emarketer senior analyst Minda Smiley.She added that the juxtaposition could make it more difficult for Meta to build credibility in an area where it's already a laggard.Meta's virtual reality division, Reality Labs, remained deep in the red, posting an operating loss of US$4.6b (NZ$8b) in the quarter.The unit has bled tens of billions of dollars, and Meta has increasingly shifted its hardware focus toward AI-powered smart glasses, a promising consumer release outside social media.Unusually for a big tech company, Meta's AI spending spree has seen its cash pile wind down, with free cash flow falling to US$784m (NZ$1.36b) from US$8.5b (NZ$14.7b) a year earlier.A similar AI-related cash burn spooked Wall Street last week when Google reported its latest earnings.Microsoft on Wednesday reported US$90b (NZ$155.7b) in revenue and US$35.8b (NZ$61.9b) in net income for its most recently completed quarter, potentially alleviating investor concerns about whether its investments in AI are paying off.Amazon, a major AI investor, and Apple, which has largely stayed out of the AI investment frenzy, both report on Thursday.- AFP