Shares of social media advertising giant Meta Platforms (META 2.52%) jumped about 6% on Thursday as one analyst reiterated a buy rating and a $910 price target for the stock. Considering that shares are trading at about $648 as of this writing, this represents considerable upside (more than 40%).
While investors shouldn't read too much into the analyst's commentary, I do agree that shares may have simply become too cheap to ignore. Remember: We're talking about a company with robust profits, rapid revenue growth, tons of cash, and huge growth opportunities. Yet shares trade at a price-to-earnings ratio in the twenties.
So, what's the holdup? Wall Street is bracing itself for Meta's massive investment cycle.
Image source: Getty Images.
Top-line momentum
In the third quarter of 2025, Meta's revenue grew 26% year over year to $51.2 billion. Highlighting Meta's momentum, this was a significant acceleration from 16% and 22% in the first and second quarters of 2025, respectively. The business still runs overwhelmingly through advertising, with about 98% of total revenue during the period coming from advertising revenue.
Fueling Q3, Meta's ad impressions across its social media apps rose 14% year over year, and the average price per ad increased 10%. Meta also said its total daily active users increased 8% year over year to more than 3.5 billion.
Additionally, profitability was robust in absolute terms, with Meta's operating income for the quarter coming in at $20.5 billion. But it notably climbed much more slowly than revenue, rising just 18%. To this end, the cost line is the part that the market has been questioning. Meta's costs and expenses climbed 32% year over year in the third quarter, and operating margin fell to 40% from 43% a year earlier. And the cash flow picture highlights even more severe pressure. Meta reported $19.4 billion of capital expenditures in the third quarter, and free cash flow of $10.6 billion, down from $15.5 billion a year earlier.
What's weighing on Meta's margins? The big spending behind a heavy investment cycle in AI (artificial intelligence) computing -- and that spending is about to get even bigger.
Valuation versus spending
"We are at an exciting point for our company, where we have continued runway to improve our core services today as well as the opportunity to build new AI-powered experiences and services that will transform how people engage with our products in the future," said chief financial officer Susan Li in the company's third-quarter earnings release.
But this will involve huge spending.
Li said that it expects its capital expenditures growth, measured in absolute dollars, to be "notably larger in 2026 than 2025" and total expenses to "grow at a significantly faster percentage rate in 2026 than 2025," driven largely by infrastructure costs related to AI-capable cloud computing.
Additionally, Meta raised its 2025 capital spending outlook in Q3. Management said it currently expects 2025 capital expenditures of $70 billion to $72 billion.
With spending like this, it's no wonder investors are discounting the stock.
But I think the sell-off may be overdone, making Thursday's sharp move higher justified.
NASDAQ: META
Key Data Points
At around 22 times forward earnings (analysts' average forecast for Meta's earnings over the next year) as of this writing, the stock is not priced like a company that just reported 26% revenue growth and guided for 16% to 22% top-line growth in Q4. Additionally, this is a company with a significant net cash position ($44.5 billion of cash, cash equivalents, and marketable securities vs long-term debt of $29 billion).
There are risks -- starting, of course, with the possibility that Meta's AI investments do not generate the growth and economics that management expects. If this were to happen, spending would rise even as growth and profitability underperform, putting significant pressure on the social media company's margins. Another risk is Meta's significant reliance on advertising revenue, which can fluctuate with the macroeconomic environment. And then there's the constant regulatory scrutiny of Meta's business, given its scale and reach.
Still, for investors willing to bet on management's ability to navigate this period of higher spending, this may be a good time to buy the stock. The underlying ad business is still growing quickly, and a conservative -- if not cheap -- valuation relative to its growth profile leaves room for attractive long-term returns if this big spending on AI pays off.
