Bill Brooklyn
Capital Preservation, Asymmetric Risk/Reward, Holding Winners
Meta's momentum looks hard to fade versus a run to $800, as Muse AI breaks into mainstream adoption and Zuckerberg is again seen as the cool AI guy, so trimming here may not be wise. Muse has not yet hit 100M users, a hardware ecosystem just launched at Connect 2026, and growth is just beginning for a potential multibillion-user product. The fear is the $140B AI capex drag: sliding margins and a range in the $750s would be a poor setup, and only a roll back to $680 would justify selling. x.comÂ
Meta's Reels and feed ads convert by interrupting people as they scroll. Its ad revenue grew 26%, with impressions up 10% and price per ad up 14%. By contrast, Google's search ads grew 12%, down from 19% in Q1 and 17% in Q2, as chatbot queries grow without ad dollars following. x.comÂ
Meta's ad engine is still growing, and its higher AI spending comes with a stronger revenue outlook. Revenue was $64.6B versus $63.4B expected, with $63.1B in ads; the Q4 guide midpoint of $74.5B beat $73.7B expected. Meta raised only the capex floor to $135B, leaving the $145B ceiling unchanged. The roughly $10B legal charge depressed reported EPS, not ads. Overweight, $1,004 target with 41% upside. x.com x.comÂ
Meta's AI spending is weakening conversion of strong ad growth into profit and cash, making its valuation one to approach patiently, not chase. Revenue rose 26%, but operating profit excluding a legal settlement rose only about 11%; $34.9B in quarterly capex exceeded $32.8B in operating cash flow. AI has helped ads, though other factors contributed. One negative free-cash-flow quarter is not an operating failure, but depreciation could squeeze margins unless new revenue covers costs. x.comÂ
Meta's core advertising business is significantly outgrowing its biggest competitors even before factoring in the newer businesses it is building. Q3 ad revenue rose 26% year over year, versus 10.6% at Alphabet and 10.9% at Amazon. Back at 19x forward earnings, Meta is the most undervalued Magnificent Seven stock. x.com x.comÂ
Meta's Instagram and Facebook stand to gain ad dollars as Google Search erodes because attention is shifting to quasi-entertainment platforms with authentic reach at scale. That shift is already starting and should continue: more time on Meta's platforms can attract more advertisers, accelerating both sides of the flywheel. Meta Muse offers another opportunity to use the platforms' personalized insights for results involving tasks, queries and transactions. x.comÂ
Meta's expected $700 billion share raise would dilute investors while a non-voting class preserves Zuckerberg's control. With AI bond financing effectively closed, that is how it plans to fund its needs. X's growing ad inventory should lower ad prices enough to pull small advertisers' budgets away from Meta. x.com x.com x.comÂ
Meta's advertising is less vulnerable to AI agents and LLMs because users must scroll Instagram themselves. AI may even give them more time to do so, while Meta retains other mega-caps' AI tailwinds; it remains the best AI stock. CapEx is still a problem. As @diyinvestor1 noted, Meta also has no exposure to OpenAI or Anthropic. x.com x.com x.comÂ
Meta's AI-orchestrated ad growth makes criticism of Zuckerberg misplaced. The business is growing in the upper 20s, versus 12% for Google Search. x.comÂ
Meta's hundreds-of-gigawatts compute ambition looks hard to justify against the revenue a much smaller build might support. If Anthropic can generate over $70B in annualized revenue on 3GW or less, including training, hundreds of gigawatts is not a serious figure. Earlier Muse monetization than in past product cycles also makes little sense without direct integration into ad recommendations or an immediate shift in user behavior. x.comÂ
Meta's 26% growth and still-unmonetized Muse make the dip buyable. ZeroHedge estimates $250 billion of AI capex next year; Meta would not spend that much unless Muse continues to unlock a massive opportunity in personal AI agents. x.com x.comÂ