Q: Meta just posted 33% revenue growth. Why does the stock trade at a discount to its megacap peers?

A: Because growth and cash flow have split apart. Revenue rose 33% year-over-year to $56.31 billion in the March quarter, but capital expenditure hit $19.84 billion in the same period, and full-year guidance was raised to $125-145 billion. Trailing free cash flow has fallen to $48.25 billion, and consensus expects it near zero for 2026. Share buybacks, which absorbed $12.75 billion a year earlier, were nil last quarter. The market has stopped paying for growth here and started charging for the spending required to sustain it.

Q: Is the advertising business actually slowing down?

A: No. Price per ad rose 12% while impressions rose 19% in the first quarter, a sign that better ranking and targeting, not just more inventory, is driving revenue. Daily active users across Facebook, Instagram, WhatsApp and Messenger reached 3.56 billion. Operating margin sits at 41.2% and return on invested capital near 30%. The core engine is performing better than the stock price suggests.

Q: So what’s actually weighing on shares?

A: Two things. First, depreciation on Meta’s ballooning asset base hasn’t caught up yet, and reported margins are likely to compress mechanically as it does. Second, and more serious, is youth-safety litigation: more than 2,400 active federal cases, claims reportedly reaching the high tens of billions, and a March 2026 Delaware ruling meaning insurers don’t have to cover it. Meta also moved into a net debt position for the first time in its public history after borrowing $27.29 billion over the past year.

Q: With all that, why is the call still Buy?

A: Because the math embedded in the current price is unusually pessimistic. At 19.8 times forward earnings, the stock is cheaper than Alphabet, Microsoft, and Amazon despite growing faster than all three. Solving backwards, that price assumes revenue growth decelerating to roughly 8.8% annually for years, against a business still compounding near 26%. A probability-weighted fair value near $762 implies about 18% upside over two years, with a scenario range from roughly $420 in a bear case to $1,050 if the AI investment starts generating third-party revenue.

Q: How should a new buyer approach it?

A: In two steps. Meta reports earnings on July 29, an event that could bring a third capital expenditure increase or confirmation that spending is stabilizing. The more disciplined approach takes half a position now and adds the rest after that print, or on further weakness toward the $580-615 range.

The full financial model, litigation risk breakdown, and staged trade plan are in the complete Meta (META) report on our Reports page.