Is Meta Platforms Stock a Buy as Revenue Continues to Soar?

Meta Platforms (NASDAQ: META) stock looks like a buy after the social media company once again reported strong revenue growth and issued upbeat guidance. While the stock has rallied from its summer low following the introduction of its Muse AI agents, the stock is around breakeven on the year after a post-earnings sell-off.

Let's dive into Meta's results and prospects to see why the stock looks like a buy.

Meta delivers 26% revenue growth in Q3

The biggest reason to own Meta stock is that it has been one of the best companies at using AI to drive growth in its core business. This was evident again in Q3, when revenue grew 26% to $64.6 billion, beating the $63.37 billion consensus, as compiled by LSEG.

Adjusted EPS, excluding a large legal settlement, came in at $7.40. That easily surpassed the $5.75 consensus.

Meta's advertising revenue jumped 26% to $63.1 billion, while other revenue climbed 59% to $1.1 billion. Revenue at Reality Labs, which is home to its reality headsets and smart glasses, fell 6% year over year to $443 million.

Reality Labs continues to produce large losses, with operating income coming in at a loss of $4.1 billion. Excluding charges, Meta's overall operating income would have risen 11%. The company said it is shifting its focus with Reality Labs toward personal superintelligence and incorporating Muse into its smart glasses while deemphasizing virtual reality investments

Meta's advertising growth was led by a 14% rise in average ad price and a 10% increase in ad impressions. The growth continues to be driven by AI, with new predictive models and generative AI tools continuing to improve ad personalization and effectiveness. This is helping improve engagement and conversion rates.

Meanwhile, over 10 million people in just the U.S. and Canada have already been using the company's new Muse AI agents since its launch a month and a half ago. About a quarter of users are interacting with the platform daily. Meta will initially monetize Muse through a combination of transaction fees and subscriptions for high-use plans. It also sees an eventual opportunity around paid usage and business services. It's also building an enterprise product as well, where it said it wants to " serve as much high-margin inference demand as possible."

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Meta also continues to grow its user base. Family Daily Active People (DAP), a metric measuring registered users who log in to one of Meta's apps daily, rose 2.8% year over year to 3.64 billion.

One of the biggest topics surrounding Meta and other hyperscalers (owners of large data centers) is the capex spending on AI infrastructure. The company raised the low end of its prior capex budget, taking it to a range of $135 billion to $145 billion from a prior outlook of $130 billion to $145 billion. Despite generating nearly $32.8 billion in operating cash flow in the quarter, Meta had negative free cash flow of $2.1 billion due to its $34.9 billion in capex spending.

Looking ahead, Meta forecasted Q4 revenue of between $73 billion and $76 billion, representing year-over-year growth of 22% to 27%. Analysts were looking for Q4 revenue of $73.7 billion. While the company did not give a full-year 2027 outlook, it did say its losses for Realty Labs would fall to $15 billion.

Now is the time to buy Meta stock

Meta is one of the best AI growth stories out there while trading at an attractive valuation, making the stock an solid buy. It's using AI in its core business to keep users on its site longer while delivering them more relevant ads that lead to higher conversions and ad prices. Meanwhile, its Muse AI agents have taken off and it looks like this could become another big future revenue stream for the company.

Trading at a forward price-to-earnings (P/E) ratio of 19 based on 2027 analyst estimates. Meta's stock is cheap for the type of growth it is delivering. That makes it a top AI stock to own heading into 2027.

Geoffrey Seiler has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.