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• The brokerage estimates underlying operating margins were closer to 37% after adjusting for one-time charges.
• Meta disclosed nearly $700 billion in contractual and future lease commitments tied largely to AI infrastructure.
• Q2 free cash flow fell to $784 million, while Zuckerberg said excess compute could eventually become a new external revenue stream.

Meta Platforms, Inc. (META) outperformed Alphabet Inc. (GOOGL) and Tesla Inc. (TSLA) among the Magnificent Seven in July, even as investors grew increasingly cautious over the company’s mounting artificial intelligence spending commitments.

Meta shares fell about 4% over the past month, but still held up better than Alphabet’s (GOOG) 6% drop and Tesla’s (TSLA) 27% plunge. 

Morningstar Sees 58% Upside In META Stock

Morningstar maintained its $850 fair value estimate on Meta, implying a 58% upside from current levels, and said the market’s reaction to the company’s latest earnings was too severe. The firm’s bullish case rests largely on the view that Meta’s AI investments are already improving the economics of its core advertising business.

Meta’s second quarter (Q2) revenue rose 28% to $60.8 billion, driven largely by advertising. But net income fell to $15.85 billion, costs jumped 55%, and third-quarter guidance came in below expectations. In Q2, ad impressions rose 14% from a year earlier, while average ad prices climbed 12%. Morningstar said these gains suggest AI is helping Meta improve both ad volume and pricing. 

Morningstar also argued that concerns around profitability may be overstated. While Meta’s reported operating margin fell sharply from a year earlier, the firm estimated the underlying margin was closer to 37% after adjusting for legal and severance-related costs. The firm expects stronger revenue growth, cost discipline and operating efficiencies to help margins remain in the mid-to-high 30% range over the next several years. 

Meta AI Spending Surges As Cash Flow Shrinks

The optimism comes as investors scrutinize the scale of Meta’s AI spending. The company disclosed $349.3 billion in non-cancelable commitments tied largely to cloud services, servers and network infrastructure, plus another $347 billion in future lease obligations, including $68 billion added in July.

Meta also narrowed its 2026 capex outlook to $130 billion to $145 billion. The spending is already pressuring cash generation, with second-quarter free cash flow falling to $784 million from $8.55 billion a year earlier.

One potential payoff could come from monetizing excess computing capacity. CEO Mark Zuckerberg said Meta has received offers for compute at a “significant premium” to what it paid. While most of the infrastructure is expected to support model development, recommendations, AI agents and other internal products, Zuckerberg said Meta also expects to build a sizable business serving large external customers.

How Do Retail Traders Feel About META?

On Stocktwits, retail sentiment for META flipped to ‘bullish’ from ‘bearish’ levels a day ago amid ‘high’ message volume.

One user said, “$META META out of all the mag sevens that is sitting in the incredible best situation now buy as much as you can the blue skies”

Another user said, “$META while everyone sells, we are strategically buidling our positon in meta ahead of midterm elections and rapidly accelerating top line. We believe meta will become a robust cloud provider”

META stock has declined 22% over the past year. 

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