Is Meta Platforms' Stock a Buy Ahead of Its Q2 Earnings Report?

It’s shaping up to be an interesting earnings season for the big tech stocks. Alphabet set the tone on July 22 with a solid second-quarter earnings report that saw revenue jump 24% from a year ago to $119.76 billion. Growth in Google Cloud was even better at 82%.

One might think that investors would celebrate Alphabet’s commitment to grow out its all-important artificial intelligence infrastructure, but you’d be wrong. Alphabet raised its capex guidance from $185 billion to $200 billion, and the stock promptly dropped 6%, taking several other major tech stocks with it, as investors are getting spooked by the amount of money being poured into AI right now.

It’s against this backdrop that fellow Magnificent Seven member Meta Platforms (NASDAQ:META) prepares to report its quarterly earnings after the closing bell on July 29. Meta, like Alphabet, has been spending heavily on data centers. But unlike Alphabet, it doesn’t have a cloud computing division of its own to sell AI computing capacity as a revenue stream.

Is that about to change? We may get some answers when Meta steps up to the earnings podium.

Image source: Meta Platforms.

About Meta Platforms stock

Meta Platforms is easily one of the best-known companies in the world -- after all, it’s not every company whose origins are dramatized on the silver screen, but Meta (then known as Facebook) got that treatment via 2010’s The Social Network, with Hollywood stars Jesse Eisenberg, Andrew Garfield, and Justin Timberlake in leading roles. CEO Mark Zuckerberg is ranked on the Bloomberg Billionaires Index as the sixth-wealthiest person in the world, with a net worth of $212 billion.

Today, the company operates a series of popular social media sites, including Facebook, Instagram, Messenger, WhatsApp, and Threads. The family of apps, as the company calls them, are used by 3.56 billion people per day, giving Meta Platforms enormous reach.

Meta Platforms has grown to a market cap of $1.5 trillion, but 2026 hasn’t been kind. Meta Platforms stock is down nearly 10% so far this year and is nearly 25% off its all-time high. That drop has the stock somewhat discounted, with a forward price-to-earnings ratio of 18.7, below its five-year P/E mean of 24.8.

Meta appears to be shifting gears

Meta appears to be a company in transition as it goes into earnings. It has continued to monetize its social media platforms, using AI tools to improve user experience and make advertising more targeted and relevant.

It also appears to be backing off its commitment to the metaverse -- the alternate reality that Zuckerberg had hoped would evolve into a digital world where people would both work and socialize. Meta Platforms even changed its name from Facebook in 2021 to emphasize the company’s new direction, and Meta has spent $80 billion so far on the effort. But Meta began cutting spending for its Reality Labs division this year as it puts more money into AI.

Part of its new direction involves what Meta is calling personal superintelligence. Meta’s vision of personal superintelligence is powerful AI assistants that can understand context, daily habits, and the user’s surroundings to aid them in everyday and long-term tasks. The AI assistant would be active nearly continuously, accessible primarily through wearable hardware.

There are also media reports that indicate that Meta, which is projected to spend $135 billion on capital expenditures and AI infrastructure this year, is considering building a cloud business of its own. Bloomberg reported that the company is building a “Meta Compute” division that would allow it to sell excess cloud computing capacity. Zuckerberg has already publicly suggested that Meta could sell excess capacity, but the Bloomberg report was the first to indicate that the company is moving forward with the plan.

In addition, The New York Times has reported that Meta is in talks with Anthropic, the AI start-up behind Claude, to lease as much as $10 billion in computing capacity to Claude in the next two years.

What should investors be looking for from Meta’s earnings report?

The first thing that most people look for from Meta is the “daily average people” number -- how many people are using Meta’s apps? And people will want to know if Meta’s advertising revenue is increasing or decreasing. If those numbers drop, it could spell trouble for the stock.

But in today’s AI-hyped environment, the biggest things to watch on July 29 are forward-looking. Alphabet raised its projected capex, and I am fully expecting Microsoft, Amazon, and Meta to do the same this week.

And I expect Zuckerberg to face a lot of questions about Meta’s potential cloud computing business, and how much revenue the company could make should it compete with neocloud companies or become a hyperscaler like Google or Amazon.

Is Meta a buy before earnings? Probably not, because I fully expect the stock to dip following the earnings report. But if you have a long-term horizon and believe in Meta’s vision, August could be an appealing time to start adding shares.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.