META – A Compelling Long-Term Buy on AI-Driven Growth

Meta shares are down ~21% from its highs in August however, the Company reported solid Q3 earnings, with sales up 26% to $51 billion. Last 12 months operating income is ~$82 billion as of writing which includes ~$18 billion of operating income losses from Reality Labs (RL)

The Company has indicated they plan to spend $100 billion on cap ex next year! Primarily to accelerate AI in the family of apps (FB, Instagram, Whats App, Threads) of course, $100 billion could be over shot.

But Mark zuckerberg feels pretty good that they will be able to absorb a very large amount of that to just convert into more intelligence and better ad recommendations.

I think whatever GPU compute not used for the family of apps will be used in Meta AI and ultimately their AR/VR glasses hardware. As mentioned above, this segment is generating an ~$18 billion loss however, revenue is up ~330% from 5 yrs ago.

At 20x EBIT, you can purchase Meta shares at a very fair price considering the 5-year CAGR has been 23%. Moreover, you get the venture upside of RL (AR/VR Meta glasses etc) for free! The RL investments make sense. As long-term shareholders you don’t want complacency.

In other words, Zuck can spend ~$52 billion on R&D for future hardware/applications without caring about what Wall St thinks because he is not complacent and is thinking out well past 20/25 years. And crazy thing is – Meta is generating $80 billion in profits after this R&D spend.

Now, lets dig a little into Meta‘s business and why I think there is more upside to the shares long term. Of course, I could be wrong.

Meta has two primary ways of driving ad sales i) volume and ii) price. On volume, 3.5 billion people use at least one of the apps every day. Instagram hit a major Q3 milestone with 3 billion monthly actives, and Meta is seeing good momentum across other apps as well.

For context, its estimated ~6.0 billion globally have access to the internet, implying that ~60% of people connected to the internet globally are users of Meta’s applications. Crazy!

For price, Meta‘s AI investments enhance value for advertisers through better targeted ads. The average price per ad increased 10% year-over-year (Q3), benefiting from increased advertiser demand, largely driven by improved ad performance.

Main risks include i) Lower returns on capital for Meta‘s investments in Reality Labs and AI. ii) Meta has a monopoly case against it in the US which could potentially force it to spin off apps – impacting scale/networking advantages.

I do think the competitive advantage will stay intack and risks are low. i) Meta is loosing ~$18 billion on Reality Labs but it’s backed by $80B+ in yearly ad profits. That’s enough to fund ~5 years of current RL losses without touching the balance sheet.

And I just think long-term, everyone/industry will be wearing glasses with AR/VR incorporated into them. This is an area where Meta is clearly leading and have a huge opportunity ahead.

Meta leverages its scale/networking effects to fight competition & engage users. When threatened by Snapchat, Meta launched Stories. When threatened by TikTok $Meta rolled out Reels. When X faced public criticism after Elon Musk’s acquisition, Meta rolled out Threads.

When purchasing equities you need to look for economic castles protected by unbreachable moats. Meta‘s ability to weaponize its scale creates strong, monetizable products.

And as always this is not financial advice. I’m just sharing my personal research & opinion. I own/may buy a position in Meta. Do your own research. Past performance ≠ future results. You can lose 100 % of your money.

Thanks for reading! Banyan Sequoia Meta share price 2025/11/07 – 621.71 USD.