Meta Stock: Fair Value Estimate Revised to $850 Amid Q2 Earnings Success

Meta Platforms (META) Q2 earnings saw sales grow 22% to $47.5 billion and operating margins rise 500 basis points to 43%. Morningstar raised its fair value estimate to $850, citing strong performance and AI-led improvements in user engagement and ad monetization. Shares are marginally undervalued relative to the updated fair value. The firm's primary ad business is resilient, and its strategy of using AI to drive better engagement and monetization continues to go strong.

Meta Platforms (META) has reported robust second-quarter (Q2) earnings, with sales growing by 22% to $47.5 billion and operating margins rising by 500 basis points to 43%. The company's performance has been driven by its AI-led initiatives, which have significantly improved user engagement and ad monetization [1].

The company's AI-powered recommendation systems have shown remarkable results, with Instagram video time surging over 20% year-over-year globally and Facebook experiencing similar gains, particularly in the U.S. market. Meta's AI systems now consider longer engagement histories to provide more relevant content, contributing to increased user engagement [2].

Morningstar has raised its fair value estimate to $850, reflecting the company's strong performance and the potential of its AI-driven strategies. While the stock is marginally undervalued relative to the updated fair value, investors should be cautious about the company's heavy investments in AI infrastructure and the potential risks associated with Reality Labs' ongoing losses [1].

Meta's primary ad business remains resilient, with advertising revenue reaching $46.56 billion. The company's AI-powered advertising suite, Advantage+, has gained traction, with nearly 2 million advertisers using video generation features. These tools particularly benefit smaller advertisers with limited creative resources [2].

However, the company's aggressive AI expansion plans may put pressure on margins in the near term. Meta's capital expenditure guidance for 2025 has been raised to $66-72 billion, reflecting significant investments in AI infrastructure. The company's focus on AI-powered wearable computing, such as Ray-Ban and Oakley Meta glasses, is also expected to drive long-term growth [2].

Despite the potential risks, Meta's strong performance and AI-driven strategies position the company favorably for long-term growth. The overwhelming majority of analysts covering META stock rate it a "Strong Buy," with an average price target of $824, about 10% above current prices [2].

References:
[1] https://finance.yahoo.com/news/meta-platforms-rises-7-month-154400436.html
[2] https://www.barchart.com/story/news/33856458/superintelligence-is-powering-super-results-for-meta-platforms-should-you-buy-meta-stock-here