Meta stock falls 7.6% YTD after record Q1 earnings beat

Meta Platforms (NASDAQ:META) closed at $609.63, a 7.57% drop year‑to‑date, after reporting Q1 2026 revenue of $56.311 billion—up 33.08% YoY—and a fifth straight earnings beat [1].

Earnings strength and AI‑powered ad growth

Meta’s core advertising business generated $55 bn of the $56.3 bn total, with ad impressions up 19% and average price per ad up 12% YoY—an uncommon combination that signals pricing power [1]. Operating margin held at 41% and return on equity at 30.24%, underscoring profitability despite a 35% YoY rise in expenses [1]. Analysts price the stock at a trailing P/E of 22 and a forward P/E of 20, well below the mid‑20s range of most big‑tech peers, while Wall Street’s average target sits at $826.69 [1].

Rising capex and Reality Labs loss risk

Capital‑expenditure guidance for 2026 rose to $125‑$145 bn, up from $115‑$135 bn previously, pushing the capex‑to‑revenue ratio toward 53%—well above peers [4]. Reality Labs posted a $4.03 bn operating loss in Q1, adding to a $19.2 bn FY2025 loss, and total operating losses have approached $77 bn over five years [4]. The higher spend prompted an 8.55% intraday decline on earnings day as investors weighed whether the AI build‑out will generate sufficient returns [1].

Valuation versus growth outlook

Despite the spend, Meta’s balance sheet remains strong, with $81.2 bn in cash and marketable securities against $58.7 bn of debt, and full‑year 2025 operating cash flow of $115.8 bn [1]. The stock trades at roughly 20× forward earnings, a discount to peers, while the market remains skeptical about the near‑term ROI of AI and AR/VR investments [2][3].

What to watch

• Capex trajectory: Quarterly capex reports and the FY2026 guidance range ($125‑$145 bn) will signal whether spending is accelerating or moderating.
• Reality Labs performance: Quarterly operating loss trends and any product launches from the division could shift sentiment on the AI spend risk.
• Valuation multiples: Moves in the forward P/E (currently ~20) and price‑to‑cash‑flow ratios will indicate whether the market re‑prices the discount relative to peers.

Meta’s earnings beat shows a resilient advertising engine, but the steep rise in AI‑related capex and ongoing Reality Labs losses keep investors cautious. The key question is whether the AI and AR/VR investments will translate into sustainable revenue growth strong enough to justify the higher spend and lift the stock out of its discount.