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Meta Platforms is Overvalued at 5.5X PS: Buy, Sell or Hold the Stock?
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Key Takeaways
META shares are down 13.9% YTD amid AI spending concerns, regulatory risks and Reality Labs losses.
META expects 2026 capital spending of $125B-$145B, raising concerns over earnings and cash flow.
META's AI tools and video gains are driving engagement, with 8M advertisers using GenAI ad tools.
Meta Platforms (META - Free Report) shares are trading at a premium, as suggested by the Value Score of C. In terms of the forward 12-month price/sales, META is trading at a premium of 5.5X, higher than the Zacks Internet Software industry’s 3.74X and Amazon’s (AMZN - Free Report) 3.02X. However, Meta Platforms’ shares are trading at a discount compared with Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report) , shares of which are trading at 9.77X and 7.7X, respectively.
META Stock’s Valuation
Image Source: Zacks Investment Research
So, is the Meta Platforms stock a buy, sell or hold at this level? Let’s find out.
META Drops 14% Year to Date: What’s Plaguing the Stock?
Meta Platforms shares have dropped 13.9% year to date (YTD), underperforming the broader Zacks Computer & Technology sector’s appreciation of 45.7% but beating the industry’s drop of 16.3%. Over the same timeframe, META shares have lagged close peers, including Alphabet and Amazon, but beat Microsoft. While Microsoft shares have dropped 17.6%, Alphabet and Amazon returned 111.3% and 14.5%, respectively.
META Stock’s Price Performance
Image Source: Zacks Investment Research
Meta Platforms has been suffering from investor skepticism over its massive AI-related spending, while the financial payoff remains uncertain. Regulatory risks, slowing user growth, and continuing losses in Reality Labs are major headwinds for META.
Meta Platforms is spending heavily on expanding AI infrastructure, which is expected to squeeze free cash flow. META now expects 2026 capital spending between $125 billion and $145 billion, higher than the previous range of $115 to $135 billion. Aggressive spending with 2026 operating expenses projected between $162-$169 billion is expected to hurt earnings prospects in the near term.
META, along with Amazon, Alphabet and Microsoft, is spending heavily on building AI infrastructure. For 2026, Alphabet now expects to spend capital expenditures between $180 billion and $190 billion (up from previous guidance of $175 billion and $185 billion), reflecting heightened demand for AI compute and incremental investment tied to the Wiz acquisition. Microsoft expects to invest roughly $190 billion in capital expenditures for fiscal 2026.
META’s AI Integration Boosts User & Advertiser Engagements
META’s focus on integrating AI into its platforms — Facebook, WhatsApp, Instagram, Messenger and Threads — is driving user as well as advertising engagements. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.56 billion daily users. Meta Platforms continues to see strong engagement trends with Instagram Reels, where watch time increased by 10% and Facebook video time increased by 8% globally in the first quarter of 2026. AI-translated videos are now watched weekly by more than 500 million users on Facebook and Instagram. Threads continue to grow with over 500 million monthly active users.
META benefits from strong growth in WhatsApp and Business Messaging. WhatsApp paid messaging and subscriptions revenue grew strongly in the first quarter of 2026. Business AI conversations reached 10 million weekly conversations, up from 1 million earlier in the year. Ads in WhatsApp Status are now viewed by hundreds of millions daily.
Meta Platforms’ generative AI advertising tools are gaining strong traction, with more than 8 million advertisers using at least one GenAI ad creative tool in the first quarter of 2026. Video generation tools improved conversion rates by over 3% while adoption among small and medium businesses has been particularly strong.
For second-quarter 2026, Meta Platforms expects total revenues between $58 billion and $61 billion. The Zacks Consensus Estimate for second-quarter 2026 revenues is currently pegged at $60.13 billion, suggesting 26.6% growth from the figure reported in the year-ago quarter.
The consensus mark for second-quarter 2026 earnings is currently pegged at $7.11 per share, unchanged over the past 30 days. The figure suggests 0.42% decline from the figure reported in the year-ago quarter.
Conclusion
Meta Platforms is spending heavily on expanding AI infrastructure, which is expected to squeeze earnings and free cash flow. This, along with a stretched valuation, is a headwind for investors.
However, Meta Platforms now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. This bodes well for investors already holding the stock.
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Meta Platforms is Overvalued at 5.5X PS: Buy, Sell or Hold the Stock?
Key Takeaways
Meta Platforms (META - Free Report) shares are trading at a premium, as suggested by the Value Score of C. In terms of the forward 12-month price/sales, META is trading at a premium of 5.5X, higher than the Zacks Internet Software industry’s 3.74X and Amazon’s (AMZN - Free Report) 3.02X. However, Meta Platforms’ shares are trading at a discount compared with Alphabet (GOOGL - Free Report) and Microsoft (MSFT - Free Report) , shares of which are trading at 9.77X and 7.7X, respectively.
META Stock’s Valuation
Image Source: Zacks Investment Research
So, is the Meta Platforms stock a buy, sell or hold at this level? Let’s find out.
META Drops 14% Year to Date: What’s Plaguing the Stock?
Meta Platforms shares have dropped 13.9% year to date (YTD), underperforming the broader Zacks Computer & Technology sector’s appreciation of 45.7% but beating the industry’s drop of 16.3%. Over the same timeframe, META shares have lagged close peers, including Alphabet and Amazon, but beat Microsoft. While Microsoft shares have dropped 17.6%, Alphabet and Amazon returned 111.3% and 14.5%, respectively.
META Stock’s Price Performance
Image Source: Zacks Investment Research
Meta Platforms has been suffering from investor skepticism over its massive AI-related spending, while the financial payoff remains uncertain. Regulatory risks, slowing user growth, and continuing losses in Reality Labs are major headwinds for META.
Meta Platforms is spending heavily on expanding AI infrastructure, which is expected to squeeze free cash flow. META now expects 2026 capital spending between $125 billion and $145 billion, higher than the previous range of $115 to $135 billion. Aggressive spending with 2026 operating expenses projected between $162-$169 billion is expected to hurt earnings prospects in the near term.
META, along with Amazon, Alphabet and Microsoft, is spending heavily on building AI infrastructure. For 2026, Alphabet now expects to spend capital expenditures between $180 billion and $190 billion (up from previous guidance of $175 billion and $185 billion), reflecting heightened demand for AI compute and incremental investment tied to the Wiz acquisition. Microsoft expects to invest roughly $190 billion in capital expenditures for fiscal 2026.
META’s AI Integration Boosts User & Advertiser Engagements
META’s focus on integrating AI into its platforms — Facebook, WhatsApp, Instagram, Messenger and Threads — is driving user as well as advertising engagements. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.56 billion daily users. Meta Platforms continues to see strong engagement trends with Instagram Reels, where watch time increased by 10% and Facebook video time increased by 8% globally in the first quarter of 2026. AI-translated videos are now watched weekly by more than 500 million users on Facebook and Instagram. Threads continue to grow with over 500 million monthly active users.
META benefits from strong growth in WhatsApp and Business Messaging. WhatsApp paid messaging and subscriptions revenue grew strongly in the first quarter of 2026. Business AI conversations reached 10 million weekly conversations, up from 1 million earlier in the year. Ads in WhatsApp Status are now viewed by hundreds of millions daily.
Meta Platforms’ generative AI advertising tools are gaining strong traction, with more than 8 million advertisers using at least one GenAI ad creative tool in the first quarter of 2026. Video generation tools improved conversion rates by over 3% while adoption among small and medium businesses has been particularly strong.
META’s View Reflects Strong Sales Growth, Earnings Decline
For second-quarter 2026, Meta Platforms expects total revenues between $58 billion and $61 billion. The Zacks Consensus Estimate for second-quarter 2026 revenues is currently pegged at $60.13 billion, suggesting 26.6% growth from the figure reported in the year-ago quarter.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
The consensus mark for second-quarter 2026 earnings is currently pegged at $7.11 per share, unchanged over the past 30 days. The figure suggests 0.42% decline from the figure reported in the year-ago quarter.
Conclusion
Meta Platforms is spending heavily on expanding AI infrastructure, which is expected to squeeze earnings and free cash flow. This, along with a stretched valuation, is a headwind for investors.
However, Meta Platforms now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. This bodes well for investors already holding the stock.
META currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.