Core Viewpoint - Wall Street analysts have rerated Meta Platforms Inc following the company's consideration to cut up to 30% of its 2026 Metaverse budget, primarily affecting the Quest virtual reality unit and Horizon Worlds, which represent the majority of metaverse-related investments [1] Group 1: Budget Cuts and Financial Projections - JP Morgan analyst Doug Anmuth projected that Reality Labs spending will reach $21 billion in 2025 and $26 billion in 2026, with a potential 30% reduction in metaverse spending saving up to $5 billion [2] - If the savings are derived from headcount reductions, Meta could potentially cut approximately 11,000–13,000 employees, which would account for 15–17% of its workforce as of Q3 [3] - Anmuth maintained his expense estimates for 2026 at $153 billion (up 30%) and capex at $115 billion (up 61%) [5] Group 2: Expense Management and Growth Drivers - The analyst emphasized the importance of maintaining GAAP EPS growth, operating income expansion, and positive free cash flow during heavy capital expenditures [4] - A 10% cost reduction across the rest of the business could yield an additional $10 billion in savings, although these cuts are expected to be reallocated to data center and AI investments [8] - Despite anticipated material cost growth in 2026, Meta appears to have flexibility in cost allocations to protect EPS growth amid macroeconomic pressures [8] Group 3: Market Sentiment and Future Outlook - The shift in Reality Labs spending is seen as constructive for market sentiment, addressing investor concerns regarding long-term Metaverse investments [9] - Analysts foresee multiple growth drivers for 2026, including increased usage, AI enhancements, and new advertising opportunities, which could elevate revenue beyond current estimates [9] - Upcoming catalysts include the launch of Meta Business AI and new user-facing AI products expected in 2026, with initial guidance for 2026 expenses projected to grow 28–38% year over year [11] Group 4: Analyst Ratings and Price Forecasts - Doug Anmuth from JPMorgan maintained an Overweight rating on Meta with a price target of $800 [10] - Justin Post from Bank of America Securities reiterated a Buy rating on Meta with a price target of $810 [10]

Core Insights - Meta Platforms Inc is accelerating AI-driven ad demand across its platforms, including Facebook, Instagram, Threads, and WhatsApp, with expectations of double-digit revenue growth into year-end [1] Revenue and Earnings Projections - Bank of America Securities analyst Justin Post forecasts third-quarter 2025 revenue of $50 billion and EPS of $7.30, exceeding the Street's estimates of $49.5 billion and $6.69 [2] - For the fourth quarter, Post projects revenue of $58.8 billion and EPS of $8.90, surpassing consensus estimates of $57.3 billion and $8.12, with a likely company forecast of $55.5–$59 billion reflecting up to 22% year-over-year growth [4] Advertising Revenue Growth - Meta's ad revenue is expected to rise 23% year-over-year, outpacing Alphabet's 13% growth, while maintaining an operating margin near 42% [3] AI Infrastructure and Long-term Growth - The company is investing in AI infrastructure, including automated ad platforms, custom silicon, and data center investments, which are seen as key long-term growth drivers [5] - New initiatives like Meta Business AI could unlock additional ad demand from smaller businesses by 2026 [5] Expense and Capital Expenditure Guidance - Analyst anticipates Meta may tighten its 2025 expense guidance to $115–$117 billion and raise the lower end of its capex range to $68–$72 billion to support expanding AI infrastructure [4] Stock Valuation - Despite heavy spending, the stock is considered attractively valued at 23 times 2026 EPS [6]