Morningstar is positive about Meta’s ad growth and AI adoption despite rising costs and regulatory challenges.
- Morningstar maintained an $850 fair value estimate, citing strong ad growth and 10 million Muse users.
- The analyst suggested Meta could expand beyond advertising by selling AI services to businesses, and renting unused computing power.
- Meta reported Q3 revenue growth of 26% to $64.6 billion, while its adjusted operating margin fell to 35% due to AI costs.
Meta Platforms Inc. (META) stock is drawing attention after its third-quarter (Q#) earnings as Morningstar maintained its $850 fair value estimate, implying a 22% upside from the stock’s last close. Strong advertising growth and early adoption of Muse AI agents boosted confidence in Meta’s AI strategy, although rising infrastructure spending continues to pressure operating margins.
Meta Platforms stock edged 0.7% lower in Thursday’s premarket.
AI Tools Could Unlock New Revenue For Meta Platforms
Morningstar analyst Malik Ahmed Khan maintained an $850 fair value estimate for Meta, citing the company’s advertising performance in third-quarter and early interest in Muse. Meta reported $64.6 billion in revenue in Q3, a 26% year-on-year increase. Its adjusted operating margin fell by five percentage points to 35%, reflecting the growing cost of AI investments. For Q4, management expects revenue to rise between 21% and 27%.
The tech giant said its Muse AI agent attracted 10 million users since launch. According to Khan, although the long-term financial contribution remains uncertain, these tools could boost engagement across Meta’s platforms and create additional income streams.
Meta’s advertising business recorded a 10% increase in ad impressions and a 14% rise in average pricing. Better content recommendations and advertising technology powered by AI have helped the company deliver more relevant ads and improve advertiser returns, said the analyst.
Several Monetization Paths Remain Possible For Meta
Beyond advertising, the analyst said Meta could bring in revenue by offering AI capabilities to businesses through enterprise products and application programming interfaces, leasing unused computing capacity to other AI developers, and earning fees from purchases completed through AI agents.
Morningstar’s financial estimates do not yet fully account for potential income from subscriptions, enterprise services or agent-led shopping, leaving room for additional growth if these businesses gain traction.
Facebook, Instagram, WhatsApp and Messenger give Meta access to billions of monthly users. Its extensive audience and accumulated user data could help improve advertising tools and content recommendations.
Risks Facing Meta’s AI Strategy
Khan warned that Meta’s costly AI and Reality Labs investments may not deliver profits. Rising expenses could hurt margins, while privacy concerns, platform design and social media’s impact on young users pose legal and regulatory risks.
However, Morningstar continues to view Meta stock as undervalued relative to its $850 fair value estimate. The analyst expects advertising to remain the primary engine of growth, while AI services and excess computing capacity could contribute additionally to revenue over time.
META Stock: Retail View
On Stocktwits, retail sentiment around the stock jumped to ‘bullish’ from ‘bearish’ territory the previous day. The stock saw a 390% surge in message volume over the past week with 0.2% gain in watchers.
META stock has gained over 5% year-to-date.
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