Wells Fargo: Meta could hit $1,000 on AI

Meta's problem is not demand but spending. Advertising revenue hit $59.36B last quarter, up 27%, as ad impressions rose 14% and price per ad climbed 12%. Yet total costs rose 55% to $42.03B in Q2, free cash flow dropped to $784M as capex reached $30.12B, and the company took $2.40B in legal charges. Diluted EPS of $6.18 missed the $7.22 estimate, ending a six-quarter run of beats, and operating margin fell to 31% from 43%.

The bull case rests on AI products starting to pay for that buildout. Advantage Plus has passed a $75 billion annual run rate, and more than 1 million businesses use Meta Business Agents every week. Zuckerberg said AI is "accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities." The stated main risk is that capex keeps growing faster than revenue.

Analysts are broadly bullish, with ratings of 8 Strong Buy, 47 Buy, 7 Hold and 1 Sell, yet the consensus target of $794.96 sits just 8.4% above the current price. Stripping out legal and severance costs would have left operating income up 9%, so the Street is too cautious. At today's price Meta trades at 23x forward earnings, so reaching $1,000 would require about 9x more multiple expansion.