What top Wall Street analysts are watching in Meta's earnings out Wednesday

CNBC

3 days ago

Wall Street remains bullish on Meta Platforms' longer-term strategy, but analysts remain watchful of how the company's artificial intelligence efforts could weigh on its second-quarter results out Wednesday. Meta shares have rallied 20% this year through Tuesday, more than twice the return in the S & P 500, as concerns about economic growth, inflation and tariffs have dissipated. Of the 77 analysts covering Meta, 63 rate it either either a buy or a strong buy. Only seven have a hold rating. While sentiment remains strong, some analysts expect Meta's recent AI spending spree and $14.3 billion ScaleAI investment to potentially overshadow second-quarter earnings. Revenue growth in the period likely slowed to 15%, down from 22% a year ago, according to LSEG. Investors will listen closely to Meta CEO Mark Zuckerberg's explanation for the Instagram parent's shifting AI strategy. Take a look at how the Street is positioned toward Meta ahead of results: Morgan Stanley: overweight rating, price target to $750 from $650 Analyst Brian Nowak sees generative AI driving higher monetization and engagement levels and, eventually, faster revenue growth. Among the keys to Meta outperforming in the second half of the year are the launch of its next-generation Llama AI models and new AI products "to help the market better understand the [return on invested capital] of the recent heavy hiring and capex investments," he said. "We raise our revenue estimates 3%/6% in '25/'26 driven by better-than-expected ad checks as tariff concerns alleviated, continued GPU enabled ad innovation, and improving FX dynamics," Nowak wrote in a July 20 note to clients. "These higher top-line estimates flow through to the bottom line as we raise EPS 5%/7% in '25/'26. With these changes, we arrive at a $750 PT after rolling our valuation to mid-year." Bank of America: buy, $775 price target Analyst Justin Post's price target implies Meta shares could rise another 11% from Tuesday's close of $700. "With AI [return on investment] a key stock sentiment driver, 2Q positives could include: 1) Ad rev upside reinforcing confidence in Meta's AI ad engine, 2) strong road map for 2H ad products, 3) optimism on new revenue opportunities for AI (Llama licensing, subscriptions, etc.) With Street likely anticipating 2Q revenue upside, risks are high [that] expectations and higher expenses offset revenue revisions. Also, EU regulatory uncertainty is likely to continue," Post wrote in a note late last week. Post added that he continues to see Meta as "one of the best AI opportunity stocks, with potential revenue upside as AI capabilities are integrated into the ad stack." Jefferies: buy, price target to $845 from $790 The investment bank remains bullish on Meta, but said that Facebook Reality Labs investments should weigh on the company's near-term profit margins. Meta's ScaleAI investment and AI hiring spree could also pressure earnings, analyst Brent Thill said in a July 16 note. "AI hiring spree signals urgency, though near-term margin pressure is likely. Capex to remain elevated ($68.6B/$74.2 in FY25/26) but bullish on its LT ROI," Thill wrote, adding that new ad dollars are already pouring into Meta's mobile ad campaigns and that the company is seeing "deep engagement" across its Instagram, Messenger and WhatsApp platforms. Rosenblatt Securities: buy, $918 price target Analyst Barton Crockett's price target suggests Meta shares might rally another 31% from Tuesday's close. Crockett said that Meta's free cash flow should get a boost from the tax credits for capital spending in the Trump administration's One Big Beautiful Bill Act. Meta "is spending many tens of millions of dollars to hire an all star AI staff. That spending could pose a risk to the P & L, or perhaps be a sign that CEO Mark Zuckerberg is confident in AI-driven cost savings to spend the money without blowing up Meta's cash flow," Crockett said in a July 22 note. Deutsche Bank: buy, $770 price target Meta's "AI talent war [is] center stage," analyst Benjamin Black wrote in a July 21 note to clients. "AI enhancements via Advantage+ are increasingly manifesting themselves in the form of improved return on ad spend (ROAS), which we expect will be a durable source of growth for Meta going forward, as Advantage+ becomes the default campaign-setup across more advertisers this year," Black said. "Additionally, deep auction dynamics are largely offsetting the impact of any large buyers exiting, with e-commerce spend growth on Meta accelerating in May and June, returning to pre-liberation day levels after the drop-off in April."