Is Meta Platforms a Buy After Its Latest Earnings Report?

In its history as a publicly traded company, Meta Platforms (NASDAQ:META) has posted many successful quarters. This year’s second frame, however, wasn’t one of them.

Those quarterly figures were published just after market close on Wednesday. In after-hours trading, the company’s stock was tumbling by almost 9% in the hours before Thursday market open. Perhaps this provides a discount that makes its beaten-down equity more attractive, however. Here’s my take.

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Profitability was a problem

Meta, which tops the social media food chain as the owner of Facebook, Instagram, and WhatsApp, earned $60.8 billion in revenue for the period. That was up 28% year over year and is reminiscent of many other quarters when its top line expanded impressively. So far, so good.

But alas, net income under generally accepted accounting principles veered in the other direction. It tumbled by 14% to $15.8 billion, or $6.18 per share.

That’s a 26% net margin, by the way, which would be the envy of many companies in this world. But Meta is not just any company; it has been a highly profitable enterprise for many years. Investors have come to expect not only lofty margins but strong and consistent growth. They didn’t get that in this earnings report.

Compounding this, the $6.18 per-share figure was well short of the consensus analyst forecast of $7.17. At least Meta didn’t suffer a double miss on estimates, as its top-line number was above the prognosticators’ collective $60.19 billion projection.

Since that bottom-line swoon was significant, uncharacteristic, and well below numerous professional estimates, it’s worth taking a look at what’s behind it.

Meta’s costs and expenses rose 55% (or almost $15 billion) to nearly $42 billion. In the conference call discussing the quarter, management chalked this up to several factors.

Higher employee compensation was a crucial one, as Meta is determined to build out its family of proprietary artificial intelligence (AI) models, and needs to spend handsomely in order to lure and retain talent. The high spending required for AI contributed to the increase in other ways, with the company citing third-party AI token costs and data center operations expenses as notable budget items.

Other wallet drainers include $2.4 billion in “charges related to legal proceedings,” most likely connected to a series of lawsuits Meta is facing for allegedly designing its platforms to be addictive to young, impressionable users. Another is $1.2 billion in severance costs for a series of layoffs the company effected in May.

Relatedly, capital expenditures (capex) rose steeply, zooming 83% higher to over $31 billion. At least some of this was AI-related, to be sure, as Meta said the spending was chiefly on investments in data centers, network infrastructure, and servers.

The capex creep

Meta’s capex projections keep rising. It now anticipates this will amount to $130 billion to $145 billion for the entirety of 2026. That low end is up from the preceding estimate of $125 billion to $145 billion. And at the start of the year, both the bottom and top ends of that range were lower, with management forecasting $115 billion to $135 billion.

Regardless, capex is basically guaranteed to be significantly higher than the $72 billion of 2025.

This reinforces CEO Mark Zuckerberg’s numerous statements in which he committed to prioritizing internal AI development and infrastructure. That’s quite the gamble, but if done effectively, it could propel the company even further ahead of the rest of the social media pack. AI can enhance user engagement, enable more precise targeting of ad spots to bolster the company’s primary revenue source, and support many other business-boosting measures.

It might also produce another major revenue stream in a hurry. Recently, media reports suggested that Meta was in discussions with Anthropic, the AI developer behind the popular Claude model, to lease it excess AI compute. Apparently, the arrangement being discussed is a two-year deal worth a cool $10 billion. If those reports are accurate, this could be the start of quite the money-spinning business for Meta — again, that’s only one client over a mere two years.

Two elements of Meta’s approach to its business that I’ve always admired are its flexibility and its boldness. It’s pushing harder into AI than most, if not all, social media companies (heck, most tech companies, period). That’s a brave yet well-considered strategy at a time when we’re still in a relatively early stage of this massive technological leap.

Meta’s share price might continue to take hits in the wake of this earnings report, which many investors surely consider disappointing. But the company is swinging for the fences and has the savvy and the resources to score big. That makes its stock worth buying to me despite the post-earnings bearishness.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.