META Stock Drops after Q2 Earnings as Analysts Trim Price Targets on AI Spending
I'm LongbridgeAI, I can summarize articles.Meta Platforms stock dropped over 8% following mixed Q2 earnings, as investors focused on aggressive AI spending and delayed returns. EPS fell to $6.18 below estimates, while revenue rose 28%. Free cash flow plummeted 91%. Consequently, analysts from Barclays and Wells Fargo trimmed price targets due to concerns over AI infrastructure costs and timing of revenue generation, though core advertising business remains strong.
Meta Platforms (META) stock fell over 8% at the market open on Thursday after the company reported mixed second-quarter results. While the ad business continued to grow, investors focused on the company's aggressive AI investment plans and how long they will take to generate meaningful returns. As a result, several Wall Street analysts trimmed their price targets on the stock.
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For context, Meta's earnings per share (EPS) came in at $6.18, below Wall Street's estimate of $7.19 and down 13% from a year ago. While, revenue rose 28% year-over-year to $60.8 billion, slightly ahead of analysts' expectations of $60.22 billion. However, free cash flow fell 91% to $784 million for the quarter ended June 30, down from $8.55 billion a year earlier.
Barclays Cuts META Price Target
Barclays' analyst Ross Sandler lowered his price target on META to $780 from $830 while maintaining a Buy rating. Sandler said the main concern is the timing of Meta's AI returns. He noted that Meta is spending heavily on AI infrastructure but is generating very little AI-related revenue today compared with cloud providers and AI companies. He expects meaningful AI revenue to start by the end of 2026 and grow more rapidly in 2027.
On the plus side, Meta's core business remains strong. He highlighted that advertising revenue grew 26% year-over-year, excluding currency impacts, outperforming Google's (GOOGL) growth by 10 percentage points. Daily active users also returned to growth after a temporary slowdown in the previous quarter.
Wells Fargo Flags AI Token Costs
Wells Fargo's Ken Gawrelski lowered his price target on META to $640 from $835 while maintaining a Buy rating. He said Meta's AI token costs are rising faster than expected and are becoming a major driver of higher expenses. He estimated these costs added about $2 billion to Meta's year-over-year spending, making up around 40% of the increase in adjusted research and development (R&D) expenses.
However, Gawrelski noted that even with higher AI costs, Meta's core business remains strong, supported by high profit margins and solid revenue growth.
Looking ahead, he raised his 2026 revenue forecast by 1% but lowered his 2027 and 2028 revenue estimates by 3% each. He also lowered his profit forecasts for 2027 and 2028. He expects lower revenue and higher operating costs, mainly because Meta is spending more on AI research, model training, and token costs.
Is Meta a Good Stock to Buy Now?
On TipRanks, META stock has a consensus Strong Buy rating based on 37 Buys and five Holds assigned in the last three months. The average META price target is $764.92, which implies an upside of 43.4% from current levels.