What happened
Evercore analyst Mark Mahaney named Meta Platforms his top large-cap long idea on July 22, citing AI-driven ad improvements and attractive valuation. One week later, Meta reported underwhelming earnings; its share price fell about 10% in a single day, prompting Mahaney to lower his price target from $930 to $820, though he reiterated an outperformance expectation.
Why it matters
Meta's revenue grew 28% year over year to $60.8 billion in Q2 2026 and trades at 20 times trailing earnings—the second-cheapest among the "Magnificent Seven" tech stocks. However, the company's costs and expenses jumped 55% year over year to $42 billion in Q2, and it raised 2026 capital expenditure guidance to between $130 billion and $145 billion (up from a previous low end of $125 billion), signaling sustained heavy AI spending with uncertain returns so far.
Why it matters
Meta's social media platforms averaged 3.6 billion daily active users across its brands in June 2026. Earnings per share came in at $6.18, a 13% year-over-year decrease versus analyst expectations of $7.14, raising questions about whether the company can monetize its AI investments before costs outpace growth.
On July 22, Mark Mahaney, an analyst at Evercore, named Meta Platforms his top large-cap long idea. His thesis rested on two key observations: that artificial intelligence is driving higher ad impressions and greater revenue per ad, fueling continued revenue growth, and that Meta is currently undervalued. One week later, Meta reported second-quarter 2026 earnings that fell short of expectations, triggering a roughly 10% single-day decline in the share price.
Meta's financial picture shows both strength and concern. The company's social media platforms averaged 3.6 billion daily active users across its brands in June 2026. Revenue grew 28% year over year to $60.8 billion in Q2 2026, and ad impressions increased 14% year over year. On valuation, Meta trades at 20 times trailing earnings and 17 times forward earnings, making it the second-cheapest stock among the Magnificent Seven, behind only Alphabet.
The stumbling block is cost growth and AI spending. Costs and expenses jumped 55% year over year to $42 billion in Q2 2026, contributing to a miss on the bottom line: earnings per share came in at $6.18, down 13% year over year, against analyst expectations of $7.14. Additionally, Meta raised its 2026 capital expenditure guidance to a range of $130 billion to $145 billion, up from a previous low end of $125 billion, signaling that AI infrastructure investment is not slowing. CEO Mark Zuckerberg and management have not disclosed concrete progress on frontier AI models; the company has delayed multiple AI rollouts, including its Avocado system and Muse Spark model.
In response to the earnings, Mahaney lowered his price target from $930 to $820 but reiterated that he expects the stock to outperform. Wall Street analysts as a whole overwhelmingly view Meta as a buy, with a median one-year price target of $800. The central question remains whether Meta's heavy AI spending will eventually translate into ad-revenue gains sufficient to offset the near-term cost surge, or whether the company is chasing returns that may not materialize.
Mark Mahaney's bullish call on Meta rested on two pillars: the company's strong revenue growth driven by AI-enhanced advertising and its valuation discount relative to peers. Meta's 28% revenue growth in Q2 2026 and its position as the second-cheapest of the Magnificent Seven made it appear undervalued on traditional multiples. Critically, Mahaney pointed to AI's documented positive effect on ad performance—higher ad impressions and revenue per ad—suggesting the company's enormous infrastructure spending could yield returns.
However, the earnings miss exposed the tension in that thesis. Meta's costs and expenses spiked 55% year over year to $42 billion in Q2, delivering an EPS that fell 13% year over year despite revenue strength. The company also raised capital expenditure guidance, signaling that AI spending is not abating. Unlike other hyperscalers, Meta does not yet have a separate business selling computing capacity, meaning it must prove that the ad revenue gains justify the infrastructure outlays. The delayed rollouts of AI systems such as Avocado and Muse Spark suggest management has not yet provided concrete evidence of progress on frontier models, leaving investors to weigh faith in the strategy against near-term margin pressure. Mahaney's price-target reduction from $930 to $820—while maintaining his buy stance—reflects the market's recalibration of that risk/reward.
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