Meta Platforms Is Ramping Up Data Center and AI Investments. Is the Growth Stock a Buy Now?

Core Insights - Meta Platforms experienced a 4.2% increase in stock price following strong first-quarter earnings, nearly erasing year-to-date losses [1] - The company's latest results and management commentary reinforce its investment thesis, positioning Meta as a top growth stock [1] Financial Performance - Meta reported a 16% increase in revenue, with operating income rising 27% due to only a 9% increase in costs, resulting in an operating margin of 41% [3] - Net income increased by 35%, and diluted earnings per share (EPS) jumped by 37% [3] User Engagement and Advertising - Daily active people (DAP) across Meta's family of apps rose by 6% year over year, supporting a 5% increase in ad impressions and a 10% increase in ad prices [4] Future Guidance - Meta projects Q2 2025 revenue between $42.5 billion and $45.5 billion, indicating a 12.6% increase from Q2 2024 [8] - The company has lowered its full-year expense guidance to a range of $113 billion to $118 billion while raising capital expenditures expectations to between $64 billion and $72 billion [9] Investment in AI - A significant portion of capital expenditures is directed towards generative AI and infrastructure improvements, with AI initiatives yielding strong returns [10] - The launch of the Meta AI app positions the company as a competitor to ChatGPT and Google Search [11] Reality Labs Division - Despite Reality Labs posting an operating loss of $4.2 billion in the quarter and a total loss of $17.73 billion in 2024, Meta continues to invest in this division due to the strong performance of its core apps [13] - Reality Labs has shown potential with products like Ray-Ban Meta AI glasses, which have quadrupled monthly active users [14] Capital Return to Shareholders - Meta returned $13.4 billion in buybacks and $1.33 billion in dividends in the latest quarter, equating to roughly 4% of its market cap if sustained [15] - The company has reduced its share count by 11.4% over five years, contributing to earnings growth outpacing net income [16] Valuation and Growth Potential - Despite a 152% increase in stock price over five years, Meta's P/E ratio stands at 22.4, considered low for a high-margin company [17] - Earnings would be even higher without the losses from Reality Labs, indicating that Meta is undervalued [18] Investment Recommendation - Meta is identified as a high-conviction buy, with a strong core business generating cash flow for capital expenditures and effective management of operating expenses [19] - The company's robust balance sheet positions it well for economic fluctuations and acquisition opportunities, making it a solid choice for growth and value investors [20]