Key Morningstar metrics for Meta

  • Fair Value Estimate: $850
  • Morningstar Rating: ★★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: High

What we thought of Meta’s earnings

Meta 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 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 billion.