Why Meta Stock Is Selling Off — Is the Market Wrong?

Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, just reported earnings, and the market hated what they saw. Today, Meta Stock is selling off. It's down 7.3% after hours, but is this actually a buying opportunity for long-term investors. Is the market wrong? Today, I'll give my thoughts on Meta Stock after its Q2 2026 earnings report. It was a big day with earnings with both Meta and Microsoft reporting. Meta was down over 7% and Microsoft was up over 8%. I'll be covering Microsoft stock in another video shortly, but first I wanted to give you my thoughts on Meta. So, what was it about the earnings report that the market hated? Well, they did miss on analyst estimates for earnings per share. It came in at $6.18 compared to the consensus of $7.19. That's a 14% miss, and I'll touch on that later. But that's not the real reason for the Meta stock sell-off. The real reason is that investors are confused and questioning Meta's AI strategy. The company is ramping up its capex and spending like some of the largest AI hyperscalers. Over $30 billion in this quarter, up 82% year-over-year. And for the full year 2026, they just said that they're expecting $130 billion to $145 billion in capex. This puts them up there with the big dogs, Google, Microsoft, Amazon. But there's one problem. Meta has no dominant AI business. They have no notable model API revenue. They have no notable cloud revenue. This is an entirely new business for them. It's massive capex allocated to a business which in the market's eyes has unclear return on invested capital. I'll be talking about that a lot in my upcoming Microsoft video. This contrasts from most of the other AI hyperscalers whether it's Microsoft, Google, Amazon, they already had massive cloud businesses and this AI data center buildout is just an expansion of that existing business. It's much easier for the market to understand. Hence, Microsoft popping 8% on this earnings report. But with Meta, the capex doesn't compute with the market. However, there is one case study that might mean positive news for Meta investors, and that is the example of SpaceX. If you didn't know, they acquired XAI. They spent tens of billions of dollars to build out some of the largest operational AI data centers. Prior to their IPO, they made massive deals to rent out and monetize that compute. Anthropic is now paying SpaceX $1.25 billion per month to rent out their Colossus 1 data center. That's 15 billion a year. On top of that, they announced a deal with Google at $920 million per month. Mark Zuckerberg and Meta's management team have hinted that this could be a potential monetization path for them going forward, especially with the massive AI compute shortage going on. Operational data centers, as evidenced if you're paying attention to the SpaceX situation, are becoming increasingly valuable assets, especially when you have a revenue takeoff at these major AI labs like Enthropic. I'll estimate what these kind of deals could look like for Meta later. So, in today's video, I'll give my thoughts on the Meta stock selloff that will include a full breakdown of their latest earnings report and an updated stock analysis on the company. If you stick around to the end, I'll provide the analyst expectations for growth at Meta Stock, including price targets, and I'll also give my thoughts on whether I think Meta Stock is undervalued at today's price. With that said, let's roll the intro and get into today's Meta Stock analysis. The following reflects the opinions of a man who spends far too much time thinking about stocks. Please do your own research before making any investment decisions. Nothing in this video is personal financial advice. Continue at your own risk. >> My name is Zach. This is Dividend Data. You should leave a like and subscribe to the channel if you enjoy the video. Throughout, I'm going to be using the next generation version of dividenda.com if you want to follow along and analyze metastto with me. The link is in the description and pin comment of the video. And to celebrate the launch of our next generation tool, we're doing a founding member deal where you can lock in 50% off annual membership. And if the tool helps you find just one better stock, then it way more than pays for itself. If you're someone who's investing consistently, it's honestly a no-brainer. Link to the sales in the description below. So, today we're going to be taking a look at the ninth most valuable company in the world, Meta Platforms. Albeit after they go down another 7% as we're still pre-market over here. I record this video early for you guys so I could get Microsoft as well tomorrow. They could be moving down below SpaceX tomorrow. We'll see. But first, let's just talk big picture. If you don't know, Meta is the parent company that owns Facebook, Instagram, WhatsApp, Threads. They have their virtual reality side of the business as well. And since it went public in 2012, it's been a great performing stock. Just from the price, it's up 1,431%. That's a 21.2% compound annual growth rate. They did start paying a dividend recently, but it's so recent, it hasn't been a notable impact in their total return. So, why has Meta just absolutely crushed it? Well, the overwhelming majority of their business comes from their family of apps. And how do they monetize that? It's through advertising. Senator, we run ads. And if you aren't aware, that's turned out to be one of the best businesses in the history of the internet and the world. And this has allowed them to monetize their massive free social media networks. And to be honest, it's a fantastic business model. Why? Because all of these businesses want the attention of the users on these social networks. and they spend heavy on Meta because they're getting the return on investment. Meta and Google are the two dominant digital advertising companies and Meta specifically is one of the most loved platforms for digital advertisers. It's where they make their money. So to any degree, Meta can improve the return on investment for their advertisers. Their advertisers can then spend more. It can become a money generation machine and that ad spend can continue growing. And that's what's been happening for the past decade at Meta. Revenue over the trailing 12 months is $228 billion. That is up 27.65% year-over-year. Since going public, their revenue has grown 6,50%. That's a 32.86% compound annual growth rate. And over the past 5 years, where Meta has already been an extremely large dominant company, they have grown their revenue 103%. That's a 16.11% compound annual growth rate. If we take a look at their adjusted earnings per share over the trailing 12 months, it's $32.75. That's up 18.57% year-over-year. Since going public, their earnings per share is up 8,253%. That's a 35.47% compound annual growth rate. Over the past 5 years, they've grown their earnings per share 133%. That's a 19.54% compound annual growth rate. This digital advertising revenue is extremely high margin. And that's Meta's core cash cow. And they generate a lot of cash flow. Over the trailing 12 months, they've earned $130.3 billion of operating cash flow. That's up 27.37% year-over-year. Since going public, it's up 8,300%. That's a 35.76% compound annual growth rate. Over the past 5 years, their operating cash flow has grown 143%. That's a 20.57% compound annual growth rate. So, where's the problem? It leads us now back to capital expenditures, capex. Meta has been ramping up their capex now at $89.33 billion over the trailing 12 months. And that's going to go into the midund billion range. And this means despite the growth at Meta's overall business and their operating cash flow, their free cash flow. So what's left over after all expenses including capital expenditures, that has not grown much over the past 5 years. Over the trailing 12 months, they've generated $40.98 billion of free cash flow, but they have continued to ramp up investing. This is actually down 18.27% year-over-year. And over the past 5 years, their free cash flow is only up 14%. That's a 2.88% compound annual growth rate. This is in large contrast to the historic free cash flow growth. Previously, when they were a more capex light business, a lot more of that money flowed through to free cash flow. This meant they could buy back stock, reinvest in a business, and just have a huge balance sheet. But now they're deploying that cash into AI data centers. And we'll talk about that as we get into Meta's latest earnings report. As I mentioned, they missed consensus by 14% on earnings per share. And if we look at the latest quarter, that $6.18 EPS, that is down 13.45% year-over-year. However, over the trailing 12 months, they are still up overall. So, let's dive into the earnings report to see what happened this quarter. Well, we can see right here that their costs and expenses increased. In the comparable quarter of 2025, it was 27 billion and this quarter it was $42 billion. So, despite a 28% revenue increase, costs raised by 55%. Operating margin went from 43% to 31%. They go on to say this included $2.4 $4 billion of charges related to legal proceedings and $1.18 billion of severance expenses in connection with the May 2026 headcount reduction. If we dive into it, you can see that most of the cost has actually come from research and development. This quarter 2025, they spent $12.9 billion and that's ramped up to $21.65 billion. So that's why you see this reduction in earnings per share. If you've been following Meta, you know they've been spending a ton in AI R&D. They've built out a massive super intelligence team, spending top dollar to acquire tons of researchers. They've definitely been participating in the talent wars. They've also been training their own internal models and they just released their spark generation of model and it's actually pretty good. So, people are feeling positive that longer term meta is going to be competent in making models. But they still are not generating any direct AI related revenue. But they do have a lot of indirect AI revenue related to their core business which I will discuss later. Actually, I'll discuss it right now. If you've been following the tech space, you know that companies like Meta and Google have been investing in machine learning for many many years. So, they were actually early adopters and innovators related to AI and machine learning. And it's turned out that one of the most profitable applications of deep learning has been in digital advertising. And why? Because it's basically just recommendation algorithms. And if you don't know Meta, they've had their own infrastructure for a long time and they've used it internally. They operate their own data centers. They've been customers of Nvidia for many, many, many years. They are actually not new to this game. And on the surface, you may think of them as just being a social media company. But the reality is that the Meta team is incredibly technical. Some of the smartest people in the world work at Meta. and they've been providing technological innovations for many many years, even contributing to open-source and software. So, a lot of the continued investment in AI infrastructure is helping with that advertising business. And there are even new innovative techniques, as an example, generative media. Now, that helps with their advertisers, making it easier to create content. And after all, if they can help their advertisers make better ads, then they'll see return on investment and want to spend more with Meta. Likewise, the meta algorithm in terms of advertising has updated a lot in recent years, and it is now basically purely algorithmic. You really don't have to be doing the targeting like you used to when you like pick, you know, demographics and all that kind of stuff. It's really based more on intent, content, and the interests of users. And that's had a great return on investment for Meta. Ad impressions are up 14% year-over-year. The average price per ad is up 12% year-over-year because people want to spend more and are willing to pay for that ad space. Revenue is up 28% year-over-year. Where do you think that comes from? It's from their digital advertising business. So, where do they go from here? Here's a quote from Mark Zuckerberg. He said, "AI is accelerating our core business today, powering the next generation of products and opening the door to entirely new enterprise opportunities." Let's take a look at the guidance for the quarter. They expect their third quarter 2026 revenue to be in the range of 61 to64 billion. So that'd be continued growth from here. They said they continue to expect operating income this year to be above 2025 operating income. Despite an increase in expenses, they're expecting 2026 total expenses to be in the range of 165 to 169 billion. And as I mentioned earlier, they're expecting 2026 capital expenditures to be in the range of 130 to $145 billion. So the capex for metastto it's going up from here but as I mentioned earlier there's potential monetization opportunities with these AI data centers and I went ahead and did a little estimate and this is thinking from first principles based on SpaceX's what they were able to rent out their compute for what potentially Meta could monetize their compute for if they had to. So first how much are they building? They're targeting 7 gawatt of AI computing infrastructure by year end and by 2027 they're planning to double that at 14 GW. Now, it may take longer for that to actually be realized and operational, but on the conservative side, if they choose to rent out two gigawatts at pricing of 15 to 20 billion of a gigawatt per year, that would produce 30 to40 billion of annual revenue for Meta. And then all of the sudden, Meta starts to look like a cloud business. And it's not unprecedented. We saw this happen with SpaceX. And the more they choose to rent out, and if it's at a higher rate, the bigger that business could be. All of a sudden, 2 to 3 years from now, this could be a $100 billion business for Meta. On the Q2 earnings call, Mark Zuckerberg stated that Meta is already receiving offers for its compute at quote at a significant premium over what we paid for it. And it's that question of what the return on investment for this capex would be, which is driving the market a little loopy, and you have a lot of bulls and bears right now. After this latest earnings report, the bears are winning. The stock is down 7.3%. But is this a potential buying opportunity for Meta Stock? Now, I'm going to take a look at the price targets, analyst projections for future growth, and a look at the historic multiples Meta has traded at, and whether we're at a discount right now. So, first, let's just start with the analyst estimates. Right now, expectations are for continued high earnings per share growth year-over-year. And if Meta hits these estimates, they're expected to earn $56.52 in earnings per share during fiscal year 2030. That would imply a 10.4 P ratio based on today's price. And given the current P ratio of 17.8, if the company hits those earnings per share targets, that would be a projected price of $1,06 in fiscal year 2030. So even if the stock doesn't get rerated upwards and it keeps the same multiple, that would be 71.8% 8% upside from here, implying 13% annual growth. But let's say it gets rerated up to 25p ratio. That would boost the projected price, implying 141% upside by 2030, which would be 22% annual growth. And that rerating upward is very possible. Right here, we're going to take a look at the value graph tool on dividend.com. And it lets you see the historic multiples that the company has traded at based on all its key metrics. And it gives you an idea of whether or not you're buying a stock right now at a good value relative to what it's traded at in the past. And by the way, this is before the 7% selloff. I'm recording this video before that's been fully registered in. We'll see how it actually ends up trading tomorrow. As you watch this video, you'll already know how it has started trading. So, right now, we're looking at earnings per share over the past 5 years for Meta Stock. The median multiple over that time has been 25.27. So, it typically trades at a 25.27P ratio. That's the median. And at today's level of earnings per share, that would imply a fair value of $82759. That's 41% upside from here. So, the stock is currently trading 29% below that implied fair value. And it's the cheapest Meta Stock has looked since 2022. And as we know, back in 2022, that was a fantastic time to buy the company. Although it was even cheaper then. If we look at it over a 10-year period, this shows you again how this is one of the best buying opportunities in years, it's really been right here and during that 2022 period as well as during 2018 through 2020. Those have all been great times to buy Meta Stock. So, let's look at a few more metrics and then I'll show you the one red flag with Meta Stock where it doesn't look like a great entry. First, we'll take a look at operating cash flow. You can see the median multiple is 17.31. So it usually trades at a 17.31 price top rate in cash flow. The current is 11.43. So if the stock got rerated back upwards to 17.31, it would imply a fair value of $886.95. That would be 51.5% upside from here. And again, over the past 10 years, this is one of the biggest gaps where it's trading below fair value. 2022 was another one of those big gaps. and even into 2023 when we look at operating cash flow. However, the biggest negative with Meta Stock is their free cash flow. I mentioned this earlier in the video. It's from all the capital expenditures. If we look at it over the past 5 years, the median free cash flow multiple for Meta Stock has been 28.47. We are currently well above that at a 36.34 multiple. That's the price to free cash flow ratio. So, if the stock went back to the median multiple, that would imply a fair value of $458, which would be 21.7% downside from today's price. Now, again, this is before that 7% sell-off. And you can see relative to the implied fair value based on the free cash flow multiple, Meta Stock looks expensive, and it has for most of the past year and a half. But it was not this way in 2022. It was looking very cheap based on free cash flow in 2022. And that's the difference between buying now versus buying in 2022. They did not have the massive AI capex back in 2022. So, it's not a directly comparable situation. So, if you're valuing meta stock based on free cash flow, which in the very long run is the most important financial metric, meta stock really isn't as cheap as it has been in the past, and we're not near it being that crazy 2022 buying period. However, the operating cash flow of the business is still quite good and there are potential opportunities for monetization which are not being reflected in the market. So, if you're someone who's bullish on AI, you're bullish on Meta and you want to buy a great company at a fair price relative to what they earn, whether you're looking at operating cash flow or earnings per share, Meta Stock today looks like a great business at a fair price and you have a little bit of a margin of safety. The current consensus price target among Wall Street analysts is $835. That implies 40% upside from here. And there is predominantly a buy rating on the stock and the stock is trading far below the lowest price target on Wall Street. So if you enjoyed this video, make sure to leave a like, comment, and subscribe to the channel. And if you want to use the stock research tool I showed throughout, it's all available at dividendata.com. Link in the description and pin comment. I do think that value graph tool a lot of you will find very valuable. And if it helps you find just one better stock or get in at a better entry point, then it way more than pays for itself. We have a 50% off sale going on right now where you can lock in 50% off annual membership. The link is in the description and pin comment below. And with that said, thanks for watching and I'll see you in the next