Meta trades at 17 times forward earnings, well below the S&P 500's 21 times multiple, despite posting 33% year-over-year revenue growth in its most recent quarter.
Wall Street may be misjudging the company by comparing it to other AI hyperscalers that operate profitable cloud businesses; Meta's computing investments serve only internal AI training and its advertising platforms.
The gap between Meta's valuation and growth rate suggests the stock may be undervalued for long-term investors.
What happened
Meta Platforms trades at 17 times forward earnings, significantly below the S&P 500's approximately 21 times forward earnings valuation. The company's revenue rose 33% year over year in the first quarter, driven primarily by advertising on its social media platforms.
Why it matters
Wall Street groups Meta with other major AI investors like Alphabet, Microsoft, and Amazon, but the comparison may be misleading. Unlike those peers, Meta uses its AI computing power internally rather than operating a profitable cloud business unit, making it primarily an advertising company that happens to invest heavily in AI. At a low valuation paired with strong ad-driven growth, the stock may be underpriced for long-term investors.
What to watch
Meta's smart glasses are positioned as the company's future AI interface—allowing AI to see and analyze the world around users—but current versions are described as only a fraction of what the company hopes to produce. Until those use cases materialize, Meta's near-term value depends almost entirely on advertising revenue growth.
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