Thu, Jul 31, 2025|Whitney Tilson

A review of Meta Platforms' latest earnings and current valuation; AI capex and pay packages are astounding

1) Longtime readers know that Meta Platforms (META) is one of four stocks that I've been closely following over the years...

The others are Berkshire Hathaway (BRK-B), Amazon (AMZN), and Alphabet (GOOGL).

In the April 17, 2019 inaugural issue of my former newsletter Empire Investment Report at my old firm Empire Financial Research, I recommended Berkshire, Amazon, Alphabet, and Meta as core holdings.

Since then, through yesterday's close, they're up 126%, 147%, 217%, and 289%, respectively. That's good for an average of 195% versus a return of 119% for the S&P 500 Index over the same period.

Well, we're in the midst of earnings season. And if you've been following along with me recently, you'll recall that I covered Alphabet's second-quarter earnings last week.

Today, let's turn to Meta...

The company reported blowout second-quarter earnings yesterday. And the stock absolutely soared earlier this morning in response. (You can see the company's full earnings release here and investor presentation here.)

Revenue jumped 22% year over year ("YOY"). That was driven by three main factors...

First, the number of daily active users for Meta's family of apps (which includes Facebook and Instagram), rose 6% YOY to 3.48 billion. Considering that the global population is around 8 billion, that's an incredible number.

Second, Meta fed these users a few more advertisements. "Ad impressions delivered" rose 11% YOY. That's also a big jump from the 5% gain in the first quarter.

Finally, Meta was able to charge a 9% higher average price per ad than in the same period last year.

Meanwhile, costs and expenses only rose 12% YOY. That's astoundingly small growth given the strong jump in revenue.

All of this translated into phenomenal earnings-per-share ("EPS") growth of 38% to $7.14. This crushed EPS estimates of $5.88.

This chart from the investor presentation shows Meta's strong revenue growth over the past two years:

Also keep in mind that expenses are growing much slower. So they're falling as a percentage of revenue. Take a look at this next chart from the presentation:

As a result of the slowdown in expenses, EPS is soaring:

Meanwhile, capital expenditures ("capex") doubled from around $8.5 billion to roughly $17 billion YOY. And management expects capex to be between $66 billion and $72 billion in 2025.

Management also guided for third-quarter revenue growth of 17% to 24%. I believe that will prove to be conservative.

Overall, it's incredible that a company this large is keeping up this kind of growth rate.

For more insights on Meta, I reached out to an old friend yesterday who knows the company better than just about anyone...

I've turned to him before when discussing Meta. He has been an entrepreneur, executive, and investor in the tech sector for the past three decades. And he invested in Meta at well under $1 per share (he still owns the shares!) when it was still a private company.

He e-mailed me back and kindly gave permission to share his thoughts with my readers here. As he says, "it's rinse and repeat again for Meta":

As I commented last quarter, [the company is executing on its] plan superbly and have again shown they can efficiently and effectively increase ad load/delivery, which drives revenue, while still growing the amount of time users spend on their apps.

It's very hard to do and speaks to their growth and revenue stickiness and ability to fund investment initiatives.

As he also noted, Meta is looking to monetize its WhatsApp messaging platform – and is doing so successfully in test markets. So now, he says the company wants to expand this worldwide:

As usual, they're saying "we don't expect revenue to be material for several years," but watch this space! WhatsApp is the delivery mechanism for the individual AI assistant for every person and business. They are building the infrastructure to make this real and changing the way the world communicates. It's the sleeping giant among Meta's other strong product offerings – maybe the biggest giant of all.

Thank you to my old friend for the insight!

Next, that brings us to the question of valuation...

At a close of about $695 per share yesterday, that means the stock would be trading at about 26.8 times a consensus EPS estimate of $25.90 for this year (coming into the earnings report).

But since Meta blew past EPS estimates and gave strong guidance, analysts are likely revising their models. However, the stock is also surging today... so let's assume it's trading at 25 times this year's earnings.

That's only slightly above the 22 times to 24 times forward multiple of the S&P 500 (depending on whose estimates you use).

It makes no sense that one of the greatest businesses of all time, growing revenues north of 20% and earnings at nearly 40%, trades at multiple anywhere near that of the average large U.S. business.

Putting this all together, I wouldn't say that the stock is "downright cheap" (as I did after Meta reported first-quarter earnings). But I continue to think it looks like a buy.

2) It's hard to remember... but it was less than three years ago when Meta's stock crashed by 76% to less than $100 per share because advertising revenue growth flatlined for one year.

Take a look at the below chart of Meta's advertising revenue in this post on social platform X:

Back in late 2022, I correctly identified the eight reasons why Meta was struggling at the time and why they would all prove to be short-term. As such, I said the stock was a pound-the-table buy.

I outlined my thinking in in a series of e-mails starting on November 1, 2022 – you can read them below:

3) As you would expect, Meta has been investing heavily in AI...

That is paying off in a big way, as evidenced by its extraordinary growth. And it's not slowing down...

As I noted earlier, the company expects to spend as much as $72 billion this year on capital expenditures (mostly related to AI). That's almost double what it spent in 2024.

And Meta isn't the only one...

Microsoft (MSFT), Tesla (TSLA), Amazon, and others are spending tens of billions of dollars as well in this AI arms race.

It's to such an extent that, according to this post on X from Renaissance Macro Research, AI capex has added more to U.S. GDP growth this year than all consumer spending:

This is mind-boggling...

4) Almost as mind-boggling are the pay packages Meta is offering to the most talented AI engineers.

According to this post on X, one of those was $1 billion over a multiyear span to one person:

Are capex levels and pay packages like this a sign of an AI bubble?

My friend Doug Kass of Seabreeze Partners certainly thinks so (Regular readers will recall that I covered Doug's bear case for AI in my May 20 e-mail).

Personally, I'm not so sure. So I think I'll put this question in my "too hard" bucket...

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.