Meta's Ad Engine Powers Growth Despite Soaring Costs: Analyst

Core Viewpoint - Meta Platforms Inc. is experiencing a surge in stock price due to increasing ad sales and anticipated profit growth, indicating that its AI initiatives are yielding positive results. The sustainability of this momentum is questioned as the company increases investments in data centers, chips, and new technologies for future growth [1] Revenue Outlook - JP Morgan analysts maintain an Overweight rating on Meta, projecting a price target of $825 by December 2026 [2] - The first-quarter revenue acceleration is significant, with analysts noting that Meta has substantial potential for AI-driven ad growth through new products and enhanced computing capacity [3] - Projected revenue growth is 25.5% in 2026, with a deceleration expected throughout the year, followed by 17% growth in 2027. Investor discussions suggest 2026 growth could range from 25% to 30%, with some believing the anticipated deceleration may be conservative [4] Infrastructure Investments - Meta's GAAP expenses are projected to be between $162 billion and $169 billion in 2026, reflecting a year-over-year growth of 38% to 44%. Capital expenditures are expected to be between $115 billion and $135 billion, marking a year-over-year increase of 65% to 94% [4] - The company's net property, plant, and equipment grew by 45% year-over-year in 2025, primarily driven by servers and network assets valued at $98 billion. Capital expenditures are projected at $133 billion in 2026 and $168 billion in 2027, leading to free cash flow estimates of $5 billion in 2026 and $6 billion in 2027 [5] Reality Labs and Losses - JP Morgan anticipates that losses from Meta's Reality Labs will peak in 2026 at approximately $19.7 billion, with 70% of operating expenses allocated to wearables and 30% to VR and Horizon projects [6] - Non-cancelable contractual commitments surged to $131 billion by the end of 2025, up from $33 billion at the end of 2024, mainly due to third-party cloud capacity agreements and infrastructure investments [6] Future Focus - Investor attention is expected to shift towards Meta's ability to sustain revenue growth beyond the first quarter, the emergence of new monetization strategies, and the progress of its large-language-model initiatives [7]