Parkev Tatevosian, CFA on $META (Oct 27, 2026)

Meta Platforms announced revenue growth of 26% and predicted further growth in the future. In addition, it exceeded expectations in a number of other aspects , but things were not entirely rosy.

The initial investor reaction was positive, with the stock price jumping by about 4% in after-hours following the announcement. The following day, as I record this, Meta's stock price has fallen by as much as 8%.

A rise of four followed by a fall of eight represents a shift of 12%.

Many investors are curious to know why this happened. I'll talk a little about that here. I will also be updating my estimates for Meta Platforms, and what I believe is a fair value for the stock now that the company has announced its results.

Do I still think it's one of the best stocks you can buy right now? What am I going to do with my shares? Should I increase my stake in Meta Platforms, or am I interested in selling now ?

Revenue rose 26% year-on-year to $64.2 billion, as the company showed more ads to more people who logged in more frequently and stayed longer when logged in.

Ad impressions increased by 10% as more users were added and their interaction rate increased. The average price per ad also increased by 14% thanks to improved ad performance, and better macroeconomic conditions helped the company to get a better price per ad.

This is difficult to achieve when you increase the display of ads, as inventory increases, making it more difficult to raise the price . But because they have achieved significant improvements in ad performance in terms of better targeting, more accurate identification of user interests, and matching those interests with the right ad at the right time, these improvements, using artificial intelligence, deliver enhanced performance in the company's core category.

Total expenses rose significantly in the last quarter to 51.6 billion, but 10 billion of that, or about 20%, was due to the legal settlement reached in August 2026. But in reality, they operated significantly more efficiently as they were able to generate 26% more revenue compared to the same quarter last year with 12% fewer employees.

This is further evidence that the company is reaping the rewards of its investments in artificial intelligence. Ad impressions are increasing, user engagement is increasing , the price per ad is rising, and ad performance is improving, all achieved with fewer employees.

Productivity is at the heart of it, and that's what many investors are optimistic about not just with Meta, but with the entire economy , especially in the United States , thanks to productivity improvements resulting from AI investments.

As a shareholder, one of my biggest concerns is that the pace of these investments is outpacing the size of the cash flows they generate. Therefore, free cash flow turned negative this quarter to $ 2.1 billion, and I expect free cash flow to remain negative for the next two years for Meta.

Consequently, the importance of the balance sheet is increasing increasingly. They ended the quarter with approximately $82.4 billion in cash and marketable securities , while they already have $83.7 billion in debt.

This is one of the things and one of the reasons that makes me think the stock price dropped the day after the announcement , as reports indicated that Mark Zuckerberg, CEO of Meta, might need to sell a large amount of shares to pay a possible tax bill in California.

Remember, if you weren't aware of it, there is legislation up for a vote in California. If passed, billionaires would have to pay a percentage of their total assets as taxes. If this law is passed, Mark Zuckerberg may need to pay billions of dollars in taxes, an amount he may not have in cash, and he will have to sell shares to pay this tax.

So, this is a growing concern. In addition, with the new equity class that has been announced, investors, myself included, are concerned that Meta may need to sell more shares to fund these AI investments.

These concerns are, in my opinion, the reason behind the decline in the stock price. You may look at $82 billion and think it's a big number, but they have already planned to spend more than $135 billion this year on capital expenditures.

Next year, they are likely to spend even more, which will increase their budget deficit. These funds will likely run out within two years if they continue at this rate of investment.

The personal assistant "MetaMuse" is already a great success , but it has not yet made a financial profit.

Therefore, their need to invest heavily means that expanding their user base will require huge investments, and they expect the total costs of the service to rise. But they expect to improve efficiency by more than tenfold next year through better utilization of off- peak capacity, more efficient models, and improved inference.

Total revenue for the fourth quarter is expected to reach approximately $74.5 billion at the midpoint. This represents an increase of about 10 billion over the current quarter, a gradual increase of about 10 billion in revenue, which is very good for Meta Platforms to fund much of its investment in artificial intelligence.

I was looking forward to their 2027 estimates for revenue and capital expenditure. We did not get specific details, but we did get some vague statements.

They said: "We are still working on developing budget and capacity plans for next year, but we expect to continue investing heavily to support our core business and emerging AI initiatives."

For me, that means a figure of at least $150 billion next year. This year, they estimated the expenses at between 135 and 150 billion. Next year, I think it will be at least 150 billion , and maybe as high as 175 billion.

Because they say to continue investing strongly.

They did not say that we would increase our investments from this year. They didn't say we would just continue to invest . Instead, they said to invest heavily. Therefore, I understand from this that there is tangible growth compared to the current year . This remains to be seen.

They will probably give us a more specific figure when they talk to us about the fourth quarter results, but for now, my estimate is between 150 billion and 175 billion in capital expenditures from Meta next year.

Well, looking at today's sell-off, Meta is now trading at a forward P/E ratio of 21. That's a relatively cheap price for a company whose revenue is growing at nearly 30%, or 26% to be more precise, and whose operating cash flow is growing at a similar rate.

But of course, they are spending a lot of money and the risks are higher now because they are engaged in this game that requires hundreds of billions of dollars in spending on artificial intelligence , a relatively new category that they do not dominate as strongly as they do social media.

Therefore, it is understandable that it is trading at a lower valuation than it would have historically traded at if it had been achieving these rates of growth .

Therefore, today I updated MetaPlatforms' discounted cash flow valuation model . One of the things I updated was the future cash flow forecast . I now expect much more negative free cash flows over the next three years.

Therefore, this year I revised my forecast downward to negative 10 billion in free cash flow. Next year, the forecast was revised downward to negative $41 billion in free cash flow.

And in the following year, negative 3 billion in free cash flow.

I do n't think the company will start generating positive free cash flows again before 2029, as it will start at $60 billion and grow from there.

Based on these updates, I am now calculating the fair value of this company at $913 per share. The current market price is $649 per share. I expect a significant increase in Meta's stock value over the next 12 to 18 months, by 40% or more.

You can understand why I own Meta shares as one of the largest positions in my investment portfolio, and why I ranked Meta as one of the best stocks you can buy.

Therefore, I reiterate that Meta's stock is among the top 10 stocks you can buy right now.