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

Meta Platforms META released its first-quarter earnings report on May 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’ Q1 Earnings

Meta Platforms kicked off fiscal 2026 with strong results, with its top line growing 33% to $56 billion. The firm’s operating margins contracted 90 basis points to 41% as AI-related costs rise. The firm also raised its capital expenditure guidance for 2026 to $135 billion from $125 billion.

Why it matters: Investors have been concerned about Meta’s ability to generate strong returns on its artificial intelligence investments. We see these quarterly results as further evidence that the firm is already generating billions of dollars from the large-scale AI investments in the form of ad dollars.

• AI-optimized ad and content recommendations are lifting time spent on Meta’s properties and conversion rates, boosting both the price (up 12%) and volume (up 19%) components of Meta’s ad sales growth algorithm.
• In particular, management called out AI-driven improvements that increased time spent across Instagram (10% lift on Reels) and Facebook (8% on video), and improved conversion rates (1.6% across Facebook and Instagram).

The bottom line: We reiterate our $850 fair value estimate for wide-moat Meta. With shares trading down after hours, likely spooked by the $10 billion increase in capital expenditure, we continue to view them as attractively priced.

• We think investors are underestimating Meta’s ability to leverage its AI investments to eke out further top-line gains by improving its ads business for advertisers while deepening its timeshare with users via more engaging content.

Big picture: We believe Meta has all the right ingredients to monetize AI at scale. The firm has low-cost infrastructure, via its own custom silicon, in-house models that are close to the frontier, and an engaged, growing distribution channel with more than 3.5 billion users.

• We believe that since the firm has all the right ingredients to make the AI return on investment work, investors should let Zuckerberg and his team cook.

Fair Value Estimate for Meta Platforms Stock

With its 4-star rating, we believe Meta’s stock is moderately undervalued compared with our long-term fair value estimate of $850. Our fair value estimate for Meta is $850 per share, implying a 2026 adjusted price/earnings multiple of 30 times and an enterprise value/adjusted EBITDA multiple of 14 times. We forecast Meta’s sales growing at a 18% 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.

Read more about Meta Platforms’ fair value estimate.

Economic Moat Rating

We believe Meta merits a wide 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 the strong competitive advantages of Meta’s FoA business will likely let it generate returns in excess of its cost of capital over the next two decades.

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 stand to increase its capital expenditure considerably over the next few years, the firm’s advertising business remains a cash-generating machine, churning out tens of billions of dollars of free cash flow on an annual cadence.

Read more about Meta’s 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. We believe Meta’s considerable scale and intangible assets, such as its ad-targeting algorithms, will most likely enable the firm to maintain its dominance in the social media space.

The firm’s high dependence on user behavior data represents an environmental, social, and governance risk. If it fails to maintain adequate data privacy and security, Meta’s advertising business will likely suffer. Also, the broader impact of social media on its users’ mental health, especially that of teenagers, is a pertinent ESG risk for Meta. There appears to be bipartisan support in the US for increased regulation of social media platforms that could include forcing Meta to change its content recommendation algorithms, potentially hitting the firm’s advertising business.

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 the monetization of ads on nascent features like 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 Jillian Moore.