Key Morningstar metrics for Meta Platforms

  • Fair Value Estimate: $850.00
  • Morningstar Rating: ★ ★ ★ ★
  • Economic Moat: Wide
  • Morningstar Uncertainty Rating: High

After a few volatile months for Meta Platforms META stock, investors are weighing how durable the company’s recent gains really are. Meta’s core business remains healthy, according to Morningstar analysts, but rising capital expenditure, uncertainty around the payoff from generative artificial intelligence, and memories of past missteps in experimental spending have reopened questions about the firm’s margins and valuation.

Meta stock has lagged the broader market over the past year, gaining about 2% since early 2025, well behind the 18% rise of the broader market as measured by the Morningstar US Market Index. Meta shares climbed through the summer and reached an all-time high of $796 in August before giving back much of those gains in the final months of the year. The recent pullback has left Meta trailing the market despite its strong longer-term performance. Over the past five years, the stock is up 122.2%.

“Investors are just worried about the capital inferno, and we’ve seen this before” says Morningstar analyst Malik Ahmed Khan of the company’s sky-high capital expenditures. “With Reality Labs, they ended up burning billions.” Reality Labs is the company’s highly experimental augmented and virtual reality business unit. Khan thinks that without this factor, investor sentiment would not be as negative around the company’s future and ongoing AI efforts.

Meta’s advertising business has continued to post strong growth, even as the company ramps up AI-related spending. But investor unease has shifted toward what 2026 could look like, particularly as Meta prepares forward guidance alongside its fourth-quarter earnings.

According to Khan, those concerns have little to do with the long-term visibility of Meta’s core platforms and are much more about near-term visibility: “People are worried about 2026 numbers that are going to come out at the end of this month when the company reports its fourth quarter and gives guidance for the rest of 2026.”

What’s driving investor concerns?

Khan says the bearish narrative around Meta can largely be distilled to a few core issues. First, investors are worried about what he describes as a “bottomless pit” of capital expenditures, particularly related to AI infrastructure, and the impact spending could have on operating profits. And unlike some peers, Meta lacks a clear stand-alone monetization arm like cloud computing to directly offset those investments.

“[Meta is] spending the same amount of dollars as these other companies are, but they actually don’t have the primary monetization arm,” Khan says. Alphabet generates revenue from Google Cloud, while Amazon benefits from Amazon Web Services.

Another concern centers on where AI dollars are being deployed. Khan says investors are more supportive of AI investments that enhance Meta’s advertising technology, while they’re skeptical of spending aimed at building consumer-facing assistants. “Meta is trying to build the best new assistant in the world … investors don’t really care about that. But dollars that are spent augmenting their ad tech via AI, investors would very much get behind that.”

However, Khan views Meta’s aggressive push into generative AI as necessary for its long-term independence, even if the near-term economics remain uncertain. Relying on third-party AI models would expose Meta to platform risk, similarly to what the company experienced when Apple changed its ad-tracking framework in 2021. “If you’re Meta, you don’t want a repeat of that where five years down the line, Gemini changes one small thing and you’re forced to adapt,” Khan says. Owning its own AI stack allows Meta to retain control over its ecosystem. Still, Khan acknowledges that so far, Meta’s combination of heavy spending and underwhelming AI model performance has weighed down investor sentiment.

Meta stock looks underappreciated

Despite near-term anxiety, Khan says Morningstar is less troubled by the issues because most of Meta’s valuation is derived from long-term cash flows. “They have invested in the right talent, they have the right infrastructure and distribution,” he explains. Over the long term, “They’re going to be able to get AI right.”

According to Khan, another underappreciated factor is how transformative AI could be for digital advertising, particularly for Meta’s long tail of small and midsize advertisers. As ad creation becomes increasingly automated, those businesses stand to benefit disproportionately because they “can’t access the best ad creative agencies, like Omnicom and Publicis,” says Khan. “Having great ad creating tools for these advertisers actually democratizes ad spend and opens up more ad spend and improves their return on ad spending.” He calls this a virtuous cycle.

Meta’s upcoming large-language model, internally known as Avocado and expected to launch in 2026, could significantly narrow the performance gap with leading AI labs. “We think the model is going to basically be in punching distance of some of the top models,” he says, citing the company’s ability to build on existing research from global AI labs. Currently, Meta’s LLMs are “pretty mediocre” compared with frontier models from companies like OpenAI and Alphabet, so releasing a cutting-edge new model could mean a lot.

The Manus acquisition and Meta’s AI roadmap

Late last month, Meta acquired Singapore-based AI assistant Manus AI, in a deal that Khan considers meaningful for Meta’s ability to truly break into the AI space. From a cost perspective, the Manus acquisition was “insignificant” for the company, being “less than half a percent of Meta’s market cap.” Khan notes that Manus is already generating revenue, with annual recurring revenue of about $125 million, making the valuation reasonable by AI standards. “Meta got a pretty sweet deal,” he says.

From a strategic perspective, “The acquisition is a vote of confidence in Meta’s own models.” Khan says Meta is likely to replace Manus’ current third-party back end LLMs with its own models (including Avocado) over time, which should “accelerate the pathway” into the company’s long-term vision for AI-powered assistants that can autonomously execute complex multistep tasks.

Economic Moat

Meta earns a wide economic moat, supported by powerful network effects, intangible assets, and scale advantages across its family of apps. With billions of users across Facebook, Instagram, WhatsApp, and Threads, Meta benefits from a self-reinforcing ecosystem that attracts advertisers seeking efficient access to global audiences.

Meta’s advertising platform benefits from vast data, sophisticated targeting, and high switching costs for advertisers. While AI-related investments may pressure margins in the near term, Meta’s scale and cash-generating core business allow it to reinvest aggressively while defending and extending its competitive position.

Fair Value and risks

Morningstar’s fair value estimate reflects confidence in Meta’s long-term earnings potential while incorporating meaningful execution and investment risks. A key downside scenario would be continued underperformance from Meta’s AI models. “If in 2026 they do launch Avocado, the new model, and it’s also subpar ... that would force us to take another look at our fair value estimate and how confident we are in Meta’s ability to generate outsize returns if the models aren’t competitive,” Khan says.

Macro risk remains another factor, according to Khan. A sharp slowdown in consumer spending could weigh on digital advertising budgets. In addition, higher-than-expected capital intensity could lead to deeper margin compression than currently modeled.

“We are actually modeling in a margin collapse in 2026,” Khan says. Morningstar expects Meta’s profitability to fall sharply as AI-related costs rise faster than revenue, leaving the company with a much smaller share of sales turning into operating profit.

META bulls say

  • Meta’s core advertising business has benefited greatly through improved ad targeting and content recommendation algorithms as well as a secular increase in digital advertising spending
  • Meta’s scale, with the majority of the world’s internet-connected users accessing its applications, allows it access to high-quality user data which it can package and sell to advertisers.
  • The firm has an opportunity to drive more ad inventory growth, leveraging new products such as Threads while also improving its monetization of ads on more nascent features such as Stories and Reels

META bears say

  • Meta’s investments in Reality Labs and generative AI stand to lose the firm billions of dollars annually, taking some of the shine off its overall business
  • The firm has a monopoly case against it in the United States, which could force it to break up, severing some of the scale advantages it has built over time.
  • Meta has disproportionately benefited from increased ad spending by Chinese retailers like Temu and Shein. A slowdown in spending by these firms could hit Meta’s growth.

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