"Magnificent Seven" stocks have a long history of beating the S&P 500, but Meta Platforms (META 0.52%), one of the seven, has been a recent laggard. It's down by 4% over the past year, while the S&P 500 has breezed past it with a 24% gain.
However, Meta Platforms is delivering on fundamentals and looks like a generational buying opportunity despite its recent underperformance.
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Advertising revenue continues to grow
Meta Platforms' recent revenue and net income growth meaningfully deviate from its lackluster stock returns. The advertising giant posted 33% year-over-year revenue growth in Q1 and boosted its net income by 61% year over year.
NASDAQ: META
Key Data Points
Almost all of Meta Platforms' revenue comes from its fast-growing advertising segment. It's a true testament to Meta Platforms' mastery of social media and online advertising that its oldest segment continues to deliver substantial revenue growth.
It forms a duopoly with Alphabet, which limits the likelihood of a third competitor taking meaningful market share. This setup, combined with recent stock movements, has resulted in an attractive valuation.
Meta Platforms only trades at a 19.6 forward price-to-earnings (P/E) ratio, which is lower than the S&P 500's 22.4 forward P/E ratio. Once investors recognize the valuation gap and Meta Platforms continues to deliver exceptional growth rates, it has a good shot at rebounding and gaining momentum.
Meta Platforms is diversifying and has time on its side
While online advertising still makes up almost all of Meta Platforms' revenue, the company has made efforts to diversify its revenue. Facebook's parent company has substantial capital, which gives it time to see multiple years of unprofitability while other start-ups would have to fold.
Meta Platforms' recent artificial intelligence (AI) model can become its own revenue source while boosting engagement across its social platforms. Figuring out more ways to monetize 3.56 billion daily active users can produce higher margins and unlock new business opportunities.
The revenue Meta Platforms generates from its family of apps makes it easier to fund AI ambitions. That's the long-term play with the growth stock, but it still has plenty of short-term catalysts that can reignite the stock price.
Meta Platforms also announced that it expects full-year expenses to stay the same from its prior guidance. That's a big deal given the uncertainty around AI spending. The update also came with Meta Platforms aiming for $58 billion to $61 billion in Q2 2026 revenue. The $59.5 billion midpoint implies 25% year-over-year revenue growth.
Investors have been pricing Meta Platforms as if growth has stopped and it has completely fallen behind in the AI race, but both of those assumptions are false. Meta Platforms looks like a bargain at current levels.
