Meta Q2 Earnings Loom: Buy, Sell or Hold META Stock Ahead of Results?

Meta Platforms META is set to report its second-quarter 2026 results on July 29.META expects total revenues between $58 billion and $61 billion, including a 2% tailwind from favorable forex. The Zacks Consensus Estimate for second-quarter revenues is pegged at $60.17 billion, indicating an increase of 26.63% from the year-ago quarter’s reported figure. The consensus mark for earnings stands at $7.13 per share, up 0.4% over the past 30 days, suggesting a decline of 0.14% from the figure reported in the year-ago quarter.Consensus Estimate Trend Image Source: Zacks Investment Research Meta’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 12.31%. Meta Platforms, Inc. Price and EPS Surprise Meta Platforms, Inc. price-eps-surprise | Meta Platforms, Inc. QuoteLet’s see how things have shaped up for the upcoming announcement.Strong Advertising Growth to Aid META’s Q2 ResultsMeta’s second-quarter 2026 performance is likely to have benefited from continued growth in advertising impressions and pricing, supported by healthy user engagement across Facebook and Instagram. In the first quarter of 2026, ad impressions increased 19% year over year, while the average price per ad rose 12%. Video remained a major engagement driver, with ranking improvements lifting Instagram Reels time spent by 10% and Facebook video time by more than 8% globally. These trends have likely supported greater ad inventory and advertiser demand in the to-be-reported quarter.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. This staggering reach makes Meta one of the most important players in the digital ad sales market, apart from Alphabet GOOGL and Amazon AMZN. META’s second-quarter results are expected to have benefited from AI-driven improvements in advertising performance. Enhancements to its Lattice and GEM models increased conversion rates for landing-page-view ads by more than 6%, while the expansion of the Adaptive Ranking Model drove a 1.6% conversion-rate increase across major Facebook and Instagram surfaces. Growing adoption of generative AI creative tools, which were used by more than 8 million advertisers, likely improved campaign performance and supported higher advertiser spending.The company’s performance is likely to have gained from improving monetization across newer products and messaging services. Meta expanded Threads advertising into more than 200 countries and continued rolling out WhatsApp Status ads, which were already being viewed by hundreds of millions of people daily. WhatsApp paid messaging and subscription revenues increased 74% year over year in the first quarter, while weekly conversations facilitated through Business AIs grew to more than 10 million from 1 million at the beginning of the year.However, Meta’s profitability is likely to have been constrained by elevated infrastructure and employee-related expenses. In the first quarter of 2026, costs and expenses increased 35% year over year, reflecting higher depreciation, data-center operating costs, third-party cloud spending and compensation for AI talent. The company maintained its 2026 expense outlook of $162-$169 billion, suggesting that these cost pressures likely persisted through the second quarter.META Shares Underperform Sector; Valuation StretchedMETA shares have dropped 9.9% year to date (YTD), underperforming the Zacks Computer & Technology sector’s appreciation of 9.6%. Shares have underperformed Alphabet and Amazon but outperformed Snap SNAP. YTD, Alphabet and Amazon shares have appreciated 2.2% and 0.6%, respectively, while Snap shares have declined 46.1%.META Stock Underperforms Sector Image Source: Zacks Investment Research Meta Platforms’ current valuation is stretched, as suggested by the Value Score of C.In terms of the forward 12-month price/sales, META is trading at 5.33X, higher than the Zacks Internet Software industry’s 3.76X, Snap’s 1.04X and Amazon’s 2.82X but lower than GOOGL’s 7.9X.META Shares are Overvalued Image Source: Zacks Investment Research META Leverages AI to Boost Growth, Higher Capex HurtsMETA’s long-term growth prospects are supported by deeper integration of AI across content recommendations and advertising. The company is developing foundation models and LLM-based recommendation systems capable of understanding content and user interests more deeply. Better recommendations can increase time spent, expand advertising inventory and improve conversion rates, strengthening both engagement and monetization across Facebook, Instagram and Threads.Meta AI and the Muse family of models offer another substantial growth avenue. Muse Spark has already driven double-digit increases in Meta AI sessions per user, while Meta plans to build personal and business agents capable of supporting shopping, customer service, content creation and other tasks. WhatsApp and Threads provide significant untapped monetization potential. Threads has more than 150 million daily active users, while WhatsApp Status has a large engagement base across Latin America, Asia and Africa. Ads, paid business messaging, subscriptions and Business AIs could gradually diversify revenues beyond Meta’s mature Facebook and Instagram advertising businesses.However, META’s aggressive AI strategy requires exceptionally high capital spending with uncertain returns. The company has committed substantial resources to data centers, cloud capacity, chips and technical talent before its newer AI products have reached meaningful monetization. META raised its 2026 capital expenditure guidance to $125-$145 billion from $115-$135 billion, citing component inflation and additional data-center investments. High depreciation, cloud expenses and infrastructure operating costs are likely to weigh on margins and free cash flow over time.ConclusionMeta appears well positioned heading into its second-quarter 2026 earnings release, supported by resilient advertising demand, AI-driven improvements in engagement and monetization, and expanding opportunities across Threads and WhatsApp. However, elevated infrastructure investments, rising operating expenses and an outstretched valuation could temper investor sentiment despite solid revenue growth. Investor expectations are already high. Hence, the upcoming results and Meta management’s commentary on AI spending, capital allocation and monetization progress will likely play a key role in determining the stock’s near-term direction.Meta Platforms currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Zacks' Research Chief Names "Stock Most Likely to Double" Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest. This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment Research