After Earnings, Is Meta Stock a Buy, a Sell, or Fairly Valued?

Meta Platforms released its second-quarter earnings report on July 29. Here’s Morningstar’s take on Meta’s earnings and stock.

Key Morningstar Metrics for Meta Platforms

• Fair Value Estimate
  : $850.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Meta Platforms’ Q2 Earnings

Meta reported its second-quarter earnings, with sales up 28% to $61 billion and adjusted margins down to 31% from 43% a year ago, as artificial intelligence investments, coupled with one-time legal and severance charges, drove margins lower. Guidance calls for $62.5 billion in sales next quarter.

Why it matters: In our view, Meta’s investments in AI compute have two value-accretive utilization channels. Internally, the use of AI is compounding gains across its ad engine. Externally, the firm is considering selling surplus compute to other AI labs, opening a new revenue stream.

• AI-driven content and ad recommendations are enabling Meta to simultaneously drive higher price and volume levers in its ad business. Impressions, or volume, rose 14%, up from 11% last year. Ad prices also accelerated to 12%, up from 9% last year.
• With one of the largest AI accelerator fleets outside public cloud vendors, we view Meta’s data centers as a multi-use asset in a compute-constrained world. We expect the firm to actively pursue compute-selling as a revenue stream in 2027.

The bottom line: We reiterate our $850 fair value estimate for wide-moat Meta and view the after-market selloff as an overreaction, leaving shares as attractively priced.

• While bears would love to point to the dramatic roughly 12-point margin collapse as evidence that AI investments are beating down Meta’s margins, we’d remind investors that, after adjusting for one-time charges, Meta’s operating margins were close to 37%.
• Also, we believe that as AI costs mount, Meta will continue to trim costs in its own organization, as seen in the recent reduction-in-force in May 2026. We expect these operational efficiencies, as well as robust top-line growth, to keep margins in the mid-to-high 30s over the next five years.

Coming up: Unlike Alphabet, Meta did not materially raise its 2026 capital expenditures, with the midpoint of management guidance rising to $137.5 billion from $135.0 billion.

The following are excerpts from Morningstar’s company report on Meta Platforms.

Fair Value Estimate for Meta Platforms

With its 4-star rating, we believe Meta’s stock is moderately undervalued compared with our long-term fair value estimate of $850, implying a 2026 adjusted price/earnings multiple of 26 times and an enterprise value/adjusted EBITDA multiple of 13 times. We forecast Meta’s sales growing at a 22% compound annual growth rate for the next five years, spearheaded primarily by an increase in average revenue per user, with user growth also chipping in.

We additionally expect Meta to leverage its AI data center buildout by renting out excess capacity to AI labs. We expect this business to grow from practically $0 in 2026 to $40 billion by 2030. On advertising, we believe Meta has a strong monetization opportunity ahead of it in Asia and the rest of the world. Looking ahead, we believe that the firm’s profitability will deteriorate, with operating margins declining to 36% over our explicit five-year forecast as increased compensation and depreciation costs eat away at the strong top-line growth.

Read more about Meta Platforms’ fair value estimate.

Economic Moat Rating

We believe Meta merits a wide economic moat rating due to the firm’s intangible assets and the potent network effect around its Family of Apps business. While the firm’s Reality Labs segment continues to hemorrhage cash, we believe Meta’s FoA business’ strong competitive advantages will likely allow the firm to generate returns in excess of its cost of capital over the next two decades. We assign a wide moat rating to Meta’s FoA segment as we believe the firm has built significant intangible assets, primarily via the customer data it collects and a potent network effect that has enabled Meta to be the most dominant social media platform in the world. We believe Meta’s Reality Labs business merits a no moat rating. While the firm’s investments in the metaverse and virtual/augmented reality could lead to profitable growth in the future, the segment continues to burn capital for Meta, with operating losses exceeding $16 billion in 2023.

Read more about Meta Platforms’ economic moat.

Financial Strength

We view Meta’s financial position as rock-solid. The firm closed out fiscal 2025 with cash and cash equivalents of $82 billion, more than offsetting its debt balance of $59 billion. While the firm’s investments in AI are likely to increase its capital expenditures considerably over the next few years, the firm’s advertising business remains a cash-generating machine, churning out tens of billions of dollars in free cash flow on an annual basis.

Read more about Meta Platforms’ financial strength.

Risk and Uncertainty

We assign Meta an Uncertainty Rating of High. We believe Meta’s investments in unprofitable ventures such as generative AI and Reality Labs add a layer of uncertainty around its business, even as its large and stable advertising business continues to generate substantial cash flows in our forecast. While there are antitrust concerns around Meta’s business, with US regulators pursuing a monopoly case against the firm, we view an often-hypothesized breakup of Meta’s applications into separate businesses as unlikely.

Read more about Meta Platforms’ risk and uncertainty.

META Bulls Say

• Meta’s core advertising business has benefited greatly through improved ad targeting and content recommendation algorithms as well as a secular increase in digital advertising spending.
• Meta’s scale, with the majority of the world’s internet-connected users accessing its applications, allows it access to high-quality user data which it can package and sell to advertisers.
• The firm has an opportunity to drive ad inventory growth, leveraging new products such as Threads while improving its monetization of ads on more nascent features such as Stories and Reels.

META Bears Say

• Meta’s investments in Reality Labs and generative AI stand to cost the firm billions annually, taking some of the shine off its overall business.
• Meta has disproportionately benefited from increased ad spending by Chinese retailers like Temu and Shein. A slowdown in spending by these firms could hit Meta’s growth.

This article was compiled by Irza Waraich.