Meta Platforms is experiencing its best month since July 2013, with its shares jumping 36% in September. This rally brings the company within 1% of a $2 trillion market capitalization, a significant turnaround from mid-August when the stock was down 18% for the year. The primary catalyst for this surge is the successful release of Meta's Muse personal AI assistant, which has quickly climbed app charts and alleviated investor concerns about the profitability of Meta's substantial AI investments. Rob Biederman, co-founder of Asymmetric Capital Partners, highlighted that Muse validates Meta's AI strategy after a period of flat stock performance due to uncertainty surrounding AI's impact.
The recovery began in two stages. First, Meta agreed in late August to pay up to $18 billion to settle a social media lawsuit, removing a major overhang for the stock. However, the excitement surrounding new AI products and their potential revenue upside, particularly Muse, is seen as the bigger driver. JPMorgan analyst Doug Anmuth, who raised his rating on Meta to overweight, noted in a September 10 report that "meaningful upside potential" remains as Meta is in the early stages of releasing advanced AI models and products beyond advertising. JPMorgan also increased its price target for Meta to $920, implying a 24% upside from the previous Wednesday's close.
Despite the current investor optimism, Meta faces substantial capital expenditures. Forecasts indicate that capital spending will reach nearly $140 billion in 2026, doubling the approximately $70 billion spent in 2025, and is projected to increase further to $197 billion in 2027 and $215 billion in 2028. This heavy spending is expected to impact free cash flow, with Meta projected to have negative free cash flow of $6.4 billion in 2026 and negative $29.2 billion in 2027, after generating $46 billion in 2025.
Analysts expect Meta's sales to rise 26% to $254 billion in 2026, with net income expanding 33% to $80.6 billion. However, revenue and profit growth are anticipated to slow in 2027 to 20% and 9%, respectively. Meta is currently priced at 21 times its expected profit over the next 12 months, which is roughly its three-year average multiple and a slight discount to the Nasdaq 100's 22 times multiple. While over 90% of analysts tracked by Bloomberg rate the stock a buy, the shares are trading around the average price target, suggesting limited short-term upside unless targets are raised.
Brandon Pizzurro, chief investment officer at GuideStone Funds, cautioned that the rapid rally makes Meta shares vulnerable to a pullback. He noted that investor sentiment regarding major AI players can change quickly with new AI model releases, and while Muse provided a boost, the bar for impressing investors is rising, along with legitimate concerns about whether these companies can consistently deliver on their AI promises.
