Meta Platforms unveiled multiple AI initiatives this month, including lower-cost smart glasses, an enterprise tool for businesses, plans for a prediction-markets app, and a partnership with Qualcomm to enhance computing power. Despite these announcements, the stock remains down more than 17% year-to-date, making it one of the worst-performing mega-cap stocks in 2026 and the second-worst among the Magnificent Seven after Microsoft, which is down 26%. The company reported first-quarter results on April 29 and raised its capital spending guidance for fiscal 2026 to $125 billion to $145 billion, a $10 billion increase at the midpoint, due to rising costs for memory, chips, and data center components. Analysts attribute the stock's underperformance to investor concerns that Meta's aggressive AI spending is not yet generating sufficient revenue to justify the capital expenditures, with the company's free cash flow approaching zero. The shift in investor sentiment reflects a broader focus on whether AI investments among hyperscalers will translate into meaningful earnings growth rather than simply expanding product portfolios.
Meta Raises Fiscal 2026 Capex Guidance to $145 Billion
Meta's first-quarter results, reported on April 29, included a capital spending guidance increase for fiscal 2026 to $125 billion to $145 billion, representing a $10 billion rise at the midpoint to $135 billion. The increase is attributed to higher costs for memory, chips, and other components required for data centers. Shares fell 9% following the earnings report. A day after the results, Bloomberg reported that Meta was planning a $25 billion bond sale to fund its AI spending.
Piper Sandler analyst Thomas Champion described the capex raise as a disappointment that overshadows the company's top-line growth. Champion stated that the capital expenditure increase was "the one thing they couldn't do and have the stock react positively," and noted that the stock's returns have been "pretty mediocre" since the announcement. He added that investors are focused on the AI investment cycle as "the elephant in the room," with most analysts positive on Meta's core advertising business but concerned about aggressive capex spending that is driving cash flow to near zero.
Analysts Highlight Revenue Justification Gap for AI Spending
Jeff Marks, director of portfolio analysis for CNBC's Investing Club, stated that "Meta is having a difficult time explaining to the market that its AI investments are worth sacrificing all its free cash flow for." Marks added that until the company proves its investments are creating new and meaningful revenue streams, the market will remain uncomfortable with its spending level.
Champion stated that investors need evidence that spending is stabilizing rather than accelerating. He noted that Meta's ability to continue growing revenue more than 20% annually despite already generating about $250 billion in annual sales is critical, saying "nothing drives value like top-line growth." Jim Cramer of CNBC's Investing Club noted that Meta lacks a high-margin cloud business like other hyperscalers including Alphabet, Microsoft, and Amazon, whose cloud operations help justify their AI spending. Cramer stated during the June Monthly Meeting for Investing Club members that Meta is "very disappointing" and that he would be inclined to trim the stock if it spikes.
Meta's forward price-to-earnings ratio stands at 16, below the S&P 500's forward P/E ratio of around 21. Champion highlighted that Meta is "trading below the market, which is interesting because it's certainly growing revenues faster than the market." Piper Sandler maintains a buy rating on Meta with a price target of $800.
Meta Launches AI Business Messaging Agent and Meta One Subscription
Meta announced an AI-powered business messaging agent designed to automate customer support, offer product recommendations, schedule appointments, and manage transactions across WhatsApp, Messenger, and Instagram. In a research note to Piper Sandler clients, Champion described the business messaging market as "underappreciated" and projected it could exceed $75 billion annually, potentially unlocking "the next wave of revenue growth" for Meta. The firm noted that Business AI conversations grew from 1 million to 10 million weekly in the first quarter. Piper Sandler highlighted growth opportunities in emerging markets including India, Vietnam, Indonesia, and Thailand, stating that the AI tool "collapses the cost barrier limiting developed market adoption" in these countries.
Meta also introduced Meta One, a paid AI subscription offering that provides users with extra features across Meta's Family of Apps. The Meta One Plus tier is priced at $7.99 per month, and the Meta One Premium plan costs $19.99 per month. Meta One is currently in limited testing and is not available in all locations. Evercore ISI analysts described Meta One as a "revenue diversification play with the potential to modestly impact revenue and more meaningfully impact operating income over time."
Evercore's confidence in AI subscriptions is based on the more than 3 billion daily active users across Meta's social media platforms and the growing online presence of businesses. The firm stated that "even modest penetration against Meta's multi-billion-user ecosystem could create a meaningful high-margin revenue stream over time." Evercore outlined a scenario in which Meta reaches 2% to 4% penetration of the Meta One offering over the next two to three years, implying $5 billion to $10 billion in incremental revenue and $3.5 billion to $7 billion in incremental operating profit by 2028. The analysts noted their assumptions could be off since this is a newer offering, but pointed to Snapchat+ as a benchmark, which has converted more than 5% of Snapchat's 25 million daily active users. Evercore has an outperform rating on Meta and a target price of $930.
FAQ
What AI initiatives did Meta announce this month?
Meta unveiled lower-cost smart glasses, an enterprise tool for businesses, plans to build a prediction-markets app, and a partnership with Qualcomm to bolster its computing power. The company also launched an AI-powered business messaging agent for WhatsApp, Messenger, and Instagram, and introduced Meta One, a paid AI subscription offering with pricing tiers at $7.99 per month for Plus and $19.99 per month for Premium.
Why did Meta's stock fall 9% after first-quarter earnings on April 29?
Meta's stock fell 9% after the company raised its capital spending guidance for fiscal 2026 to $125 billion to $145 billion, a $10 billion increase at the midpoint to $135 billion. The increase is due to rising costs for memory, chips, and other components needed for data centers. Analysts stated that the capex raise disappointed investors who are concerned that aggressive AI spending is not generating sufficient revenue to justify the expenditures, with the company's free cash flow approaching zero.
What revenue projections do analysts have for Meta's new AI products?
Piper Sandler projects that Meta's AI business messaging market could exceed $75 billion annually, with Business AI conversations growing from 1 million to 10 million weekly in the first quarter. Evercore ISI outlined a scenario in which Meta One reaches 2% to 4% penetration over the next two to three years, implying $5 billion to $10 billion in incremental revenue and $3.5 billion to $7 billion in incremental operating profit by 2028. Evercore has a price target of $930, and Piper Sandler has a price target of $800.
