Meta Platforms Is Ramping Up Data Center and AI Investments. Is the Growth Stock a Buy Now?

Meta Platforms (NASDAQ: META) rocketed 4.2% higher on Thursday in response to strong first-quarter earnings. The stock has erased almost all of its year-to-date losses in recent weeks, and, at the time of this writing, it is just a couple of percentage points off from being even on the year.

Here's why the company's latest results -- and management commentary on the earnings call -- reinforce its underlying investment thesis, and why Meta is a top growth stock to buy now.

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Family of apps continues to drive high-margin growth

Meta delivered 16% higher revenue -- but operating income soared 27%, thanks to just a 9% increase in costs and expenses. Meta finished the quarter with a sky-high operating margin of 41% -- meaning it converted 41 cents of every dollar in revenue into operating income.

Manageable spending also led to a 35% increase in net income and a 37% jump in diluted earnings per share (EPS).

This profitability is a testament to the company's strong business model. It's driving user engagement, which attracts advertisers. Meta's engagement metric -- family daily active people (DAP) -- refers to daily active people across its "family of apps" segment, which includes Instagram, WhatsApp, Facebook, Messenger, and Threads. DAP rose 6% year over year, which supported a 5% increase in ad impressions and a 10% increase in price per ad.

The following chart shows how diluted EPS has more than tripled from pre-pandemic levels, thanks to consistent revenue growth and margin expansion:

META Revenue (TTM) data by YCharts.

Results were excellent, but the company's outlook and confidence in its long-term investments were arguably even more encouraging.

Accelerating AI spending

Meta is guiding for $42.5 billion to $45.5 billion in Q2 2025 revenue. At the midpoint of $44 billion, that would be a 12.6% jump from Q2 2024 -- which was a difficult comparable, considering Q2 2024 revenue was up 22% year over year.

The company is lowering its full-year guidance for total expenses from a range of $114 billion to $119 billion to a new range of $113 billion to $118 billion. But it's raising its full-year 2025 capital expenditures (capex) expectations to between $64 billion and $72 billion -- up from its prior outlook of $60 billion to $65 billion.

Most of capex is going toward generative artificial intelligence (AI) and core business needs. Meta is investing in infrastructure improvements (like building data centers) to scale up its AI services, while maintaining control and flexibility of its operations so it can react to changing customer preferences. Management said that it's generating strong returns from its AI initiatives by increasing the efficiency of its workloads. For example, AI-driven feed and video recommendations delivered a 7% increase in time spent on Facebook and a 6% increase in time spent on Instagram.

AI is favorably impacting user engagement and helping advertisers customize campaigns based on their objectives and budgets. On April 29, the day before Meta reported earnings, it released the Meta AI app, which leverages the latest version of its large language model -- Llama 4. The Meta AI app is a stand-alone tool, which is different from embedded AI functionality in Instagram, Facebook, and WhatsApp. The app can solve problems, answer questions, provide deep dives on topics, and more -- which makes it a competitor to ChatGPT and Alphabet-owned Google Search.

Meta's sustained growth and higher capex, despite difficult comps and an uncertain macro environment, speak volumes about its business model's effectiveness and its belief in long-term investments in AI and other research and development.

The company continues to pour money into its Reality Labs division, which is building devices and experiences in virtual reality, augmented reality, the metaverse, and other efforts. And while the core family of apps segment continues to deliver high-margin growth, Reality Labs is a money pit -- posting an operating loss of $4.2 billion in the quarter. In 2024, Reality Labs lost a staggering $17.73 billion. As high as that figure is, Meta can afford it because of the impeccable performance of its family of apps.

Reality Labs has shown some bright spots. For example, Ray-Ban Meta AI glasses had four times as many monthly active users as a year ago. Despite the upside potential, Reality Labs is simply too unproven to factor into Meta's investment thesis.

Returning capital to shareholders

Even with its aggressive capex spending and ongoing support of the unprofitable Reality Labs division, Meta can still afford to return a significant amount of capital to shareholders. In its latest quarter, it spent $13.4 billion on buybacks and $1.33 billion on dividends. (Meta began paying dividends last year.)

If it were to sustain the same pace of buybacks and dividends for the whole year, it would return roughly 4% of its market cap to shareholders. Put another way, if Meta only paid dividends and didn't repurchase stock, it would have a dividend yield of 4% -- illustrating just how massive its capital return program is.

Over time, buybacks have helped the company grow earnings far faster than net income. Despite its high stock-based compensation, Meta has achieved one of the most aggressive share-count reductions of the megacap tech-focused companies. In just five years, Meta has reduced its share count by 11.4%, which is slightly more than Alphabet's 10.9% reduction and a bit shy of Apple's 12.8%.

Steady buybacks and earnings growth have helped keep the stock's valuation reasonable despite its strong share price. Meta's stock price has soared 152% in the last five years, but diluted EPS has grown even faster, so the price-to-earnings (P/E) ratio has actually fallen. In fact, Meta sports a P/E of just 22.4 -- which is dirt cheap for an industry-leading company with high margins.

What's even more impressive is that earnings would be even higher if the company weren't losing billions each quarter on Reality Labs. So from that perspective, Meta is beyond cheap.

Meta Platforms is a high-conviction buy

Meta checks all the boxes of a top growth stock to buy now.

The core business continues to fire on all cylinders and generate plenty of cash flow to use for higher capex. Meta has done a good job managing operating expenses to support its long-term investments and help cushion the blow from Reality Labs losses.

The company continues to repurchase stock at a breakneck pace, keeping a tight lid on its valuation. Its ultrastrong balance sheet allows it to navigate an economic slowdown or pounce on acquisition opportunities.

Add all that up, and Meta Platforms is one of the best buys today: It can play a foundational role in a diversified portfolio for growth and value investors alike.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Meta Platforms. The Motley Fool has a disclosure policy.