Buy, Sell or Hold the Stock?

Meta Platforms META shares are overvalued, as suggested by the Value Score of C. In terms of the forward 12-month price/sales, META is trading at a premium of 5.92X, higher than the Zacks Internet Software industry’s 4.08X and Amazon‘s AMZN 3.01X. However, Meta Platforms’ shares are trading at a discount compared with Alphabet GOOGL and Microsoft MSFT, shares of which are trading at 9.01X and 7.56X, respectively.  

META Stock’s Valuation

Image Source: Zacks Investment Research

So, is Meta stock a buy or hold at this level? Let’s find out.

META Suffers From Rising AI Spend

Meta shares have lost 0.5% year to date (YTD) against the broader Zacks Computer & Technology sector’s appreciation of 17%, Alphabet’s rise of 12.7%, and Amazon’s return of 7.2%. However, META shares have outperformed Microsoft shares, which have dropped 19.1% over the same time frame.

META Stock’s Price Performance

Image Source: Zacks Investment Research

META shares have been suffering from investor concerns over huge spending, returns on AI investments and regulatory risks. The company is spending heavily on AI research, models and infrastructure. META now expects 2026 capital spending between $125 billion and $135 billion. Although these investments are expected to boost META’s prospects over the long term, a challenging macroeconomic environment, regulatory issues (in the European Union and the United States) and stiff competition in the ad market from the likes of Alphabet, Amazon, Snap and TikTok, among others, are expected to remain an overhang on the shares. 

Higher capital spending is also expected to squeeze free cash flow. Capital expenditures reached $19.8 billion in the first quarter of 2026, up sharply from $13.7 billion a year ago. META is also expected to suffer from higher operating expenses. For 2026, META anticipates total expenses between $162 billion and $169 billion, thanks to higher infrastructure depreciation, increased cloud spending, AI chip purchases and aggressive hiring of AI researchers and engineers.

Q2’26 Earnings Estimate Revisions Negative for META

The Zacks Consensus Estimate for the second quarter of 2026 earnings is pegged at $7.09 per share, down 1.5% over the past 60 days, suggesting a 0.7% decline from the figure reported in 2025. 

Meta Platforms, Inc. Price and Consensus

Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote

Meta expects total revenues between $58 billion and $61 billion for the second quarter of 2026, including 2% tailwind from favorable forex.

The consensus mark for second-quarter 2026 revenues is pegged at $60.20 billion, suggesting 26.7% growth from the figure reported in the year-ago quarter.

META’s AI Integration Boosts User & Advertiser Engagements

META’s focus on integrating AI into its platforms — Facebook, WhatsApp, Instagram, Messenger and Threads — is driving user as well as advertising engagements. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.56 billion daily users. AI recommendations that deliver higher quality and more relevant content are expected to drive engagement.  

Meta’s advertising business remains its biggest growth engine, supported by AI. In the first quarter of 2026, ad impressions increased 19% year over year, while the average price per ad rose 12%, reflecting stronger advertiser demand and improved ad performance. AI-driven recommendation and ranking models continue to enhance targeting, helping advertisers achieve better conversion rates and returns on investment. As Meta further integrates generative AI into advertising tools, improved campaign effectiveness and higher monetization should support sustained advertising revenue growth.

Meta is rapidly expanding its AI ecosystem with the launch of its first Muse model from Meta Superintelligence Labs and the broader deployment of Meta AI across its platforms. These technologies lay the foundation for new revenue streams through premium AI assistants, AI-powered content creation, image generation and enterprise services. As user engagement with Meta AI continues to rise, the company is well-positioned to monetize personal AI experiences and developer tools while strengthening its competitive position in the rapidly evolving generative AI market.

Meta is extending AI beyond consumer applications into enterprise solutions. The company is seeing rapid adoption of AI-powered business messaging, customer support and marketing tools across WhatsApp, Messenger and Instagram. Millions of advertisers already use Meta’s generative AI creative tools to improve campaign performance and automate content creation. As businesses increasingly adopt AI agents for customer engagement and commerce, Meta is positioned to generate incremental revenues beyond its traditional advertising business, creating a significant long-term growth opportunity.

Conclusion

Meta remains well-positioned for long-term growth, supported by AI-driven improvements in advertising, expanding user engagement and emerging monetization opportunities across consumer and enterprise AI. However, the company’s elevated valuation, massive AI investments, rising expenses and regulatory uncertainties could limit near-term upside. While Meta’s strong fundamentals justify maintaining exposure, investors may want to wait for a more attractive entry point or greater visibility into returns on its AI spending. 

META currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Meta Platforms, Inc. (META) : Free Stock Analysis Report

Amazon.com, Inc. (AMZN) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research