Meta Platforms’ Valuation: Is a 24.18X P/E Still Justifiable?
Meta Platforms (META) shares are trading at a premium, as indicated by its Value Score of D. With a forward 12-month Price/Earnings (P/E) ratio of 24.18X, the company is trading at a higher valuation compared to the Zacks Computer & Technology sector’s 23.72X, according to Zacks Investment Research.
In comparison to its closest peers in the digital advertising domain, Meta Platforms is trading at a premium to Alphabet (GOOGL) but at a discount to Amazon (AMZN). Alphabet’s forward 12-month P/E ratio stands at 16.26X, while Amazon’s is at 31.44X. All three companies are expected to capture approximately 50% of the projected global ad spending by 2028, as noted by Zacks Investment Research.
P/E Ratio (F12M)
Despite potential risks such as higher tariffs and a prolonged trade war that could negatively impact digital advertising spending, Meta Platforms’ focus on Artificial Intelligence (AI) is seen as a key catalyst. The company’s emphasis on leveraging AI to improve user engagement is noteworthy, given its vast trove of data driven by over 3.43 billion daily users. As Zacks Investment Research reports, Meta AI usage continues to increase, with roughly one billion monthly users globally.
The company’s initiative to add updates that will help Meta AI deliver more personalized and relevant responses is expected to boost engagement. Amid an uncertain macroeconomic environment, Meta Platforms shares have appreciated 9.2% year to date, outperforming the broader sector as well as peers, including Alphabet and Amazon, which have dropped 4.9% and 16.3%, respectively, according to Zacks Investment Research.
META Stock’s Performance
META shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend, as reported by Zacks Investment Research. The company’s focus on improving advertisers’ return on ad spending through its proprietary machine learning system, Andromeda, is powered by NVIDIA (NVDA).
META Leverages AI to Boost Advertising Revenues
The deployment of META’s deep neural network on the NVIDIA Grace Hopper Superchip across Instagram and Facebook applications has achieved more than 6% recall improvement to the retrieval system while delivering over 8% ad quality improvement on selected segments. As Zacks Investment Research notes, Meta Platforms’ focus on making Meta AI the leading personal AI with a deepening emphasis on personalization, voice conversations, and entertainment is a key catalyst.
The launch of Meta AI’s standalone app is a noteworthy development in this regard. The introduction of the new Generative Ads Recommendation model for ads ranking used on Facebook Reels has increased conversion rates by 5%. Meta Platforms also saw 30% more advertisers using AI creative tools. Improvements in META’s recommendation system have led to a 7% increase in time spent on Facebook, a 6% increase on Instagram, and a 35% increase on Threads over the past six months.
META’s Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for second-quarter 2025 earnings is pegged at $5.84 per share, up by 3.2% over the past 30 days, indicating a 13.18% year-over-year increase, according to Zacks Investment Research. META’s earnings have beaten the Zacks Consensus Estimate in all the trailing four quarters, with an average surprise of 17.30%.
Here’s Why You Should Hold META Stock Right Now
AI usage is making META a popular name among advertisers as well as users. However, operating expenses are expected to be in the $114-$119 billion range, with headcount expected to increase within infrastructure, monetization, Reality Labs, Generative AI, regulations, and compliance. Regulatory concerns in the United States and Europe, along with tariffs, make the stock a risky bet, as noted by Zacks Investment Research.
META is spending heavily on expanding AI infrastructure, with capital expenditure expected to be between $64 billion and $72 billion in 2025, driven by its Gen AI initiatives and core business. Although these investments bode well for the company’s longer-term prospects, the lack of monetization of new platforms, such as Threads and Meta AI, is a concern. As Zacks Investment Research reports, META currently has a Zacks Rank #3 (Hold), implying that investors should wait for a more favorable point to accumulate the stock.
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