Meta Outlook: Advertising Fundamentals and the Sustainability of Profits

Eastern Time, after the market closed on April 29th, Meta Platforms will release its Q1 2026 financial report. On the eve of the report's release, Meta has just announced the layoff of 8,000 employees and the cancellation of 6,000 vacant positions, trying to find a balance between massive AI investments and operational efficiency. The focus of this financial report in the market has shifted from solely the growth of advertising performance to a core issue: under the infrastructure investment of AI over a hundred billion dollars a year, whether the company can maintain the sustainability of profitability.

Advertising growth set to rise, cost concerns emerge

According to the consensus forecast by analysts compiled by Bloomberg, Meta's Q1 revenue is expected to be $55.5 billion, a year-on-year increase of about 31%. The adjusted earnings per share are expected to be $8.15, falling close to the midpoint of the company's previous guidance of $53.5 billion to $56.5 billion in revenue. Compared to the last year's revenue of $42.3 billion and $6.43 per share, the high base effect has made the year-on-year high growth inevitable.

Behind the high growth lies a structural division. BNP Paribas Research estimated Meta's Q1 revenue growth to reach 32%-33%, higher than the market consensus, mainly driven by the enhanced monetization efficiency of Advantage+ AI advertising platform, and the continuous optimization of Reels short video advertising load. Currently, the daily usage time of users on Meta's platforms accounts for more than 40% of the total time on major social media, almost twice that of competitors, providing a solid support for advertising pricing power.

However, the recovery of the advertising business is not without concerns. Oppenheimer pointed out in the research report that although the revenue growth is strong, the rise in operation costs will limit the release of profit leverage. As Meta increasingly adopts third-party computing resources such as CoreWeave and Nebius on a large scale, the rigid growth in operating costs may become the core resistance to profit margin expansion.

Hundred billion capital expenditure, AI investment return becomes market interrogation

The most core observation point in this financial report is undoubtedly the capital expenditure guidance. In 2025, Meta's capital expenditure reached $72.2 billion. The company gave a guidance range of $115 billion to $135 billion for 2026 in January, with a year-on-year increase of 60%-87%, which exceeds the market's expected scale of investment and has raised widespread doubts among investors about the rate of return on investment.

Goldman Sachs said in the research report that investors will focus on the management's interpretation of the AI strategy for the next 12-24 months. In particular, the landing of computing resources in core businesses and the logic of creating new revenue paradigms require a clear transmission mechanism between AI investment and revenue growth. Morgan Stanley, although making Meta the preferred target in the tech giant's financial report season, warned at the same time that its forecast for Meta's capital expenditure in 2027 was about 15% higher than the market consensus. The uncertainty of the peak investment intensity may limit the company's valuation expansion space, and the core need to verify the quantifiable commercial value of GPU and generative AI investment.

Valuation logic restructuring, intensified competition between bulls and bears

Wall Street's valuation logic for Meta is undergoing profound restructuring. The bullish view believes that the current stock price has not fully reflected the long-term value brought by AI. China Merchants Securities (Hong Kong) pointed out that Meta is expanding from social media networks to the field of AI intelligence, and its non-GAAP price-to-earnings ratio for the 2026 financial year is only 16 times, lower than the industry average of 23 times, and also lower than tech giants such as Amazon and Microsoft. The valuation still has appeal, and AI-driven improvements in advertising precision and e-commerce intelligence tools will become new growth engines.

The bearish view should not be ignored. Some analysts worry that Meta's capital expenditure competition has fallen into a "prisoner's dilemma": the combined AI investment of the four giants, Microsoft, Amazon, Google, and Meta, will exceed $650 billion in 2026. No single company can afford to cut back on spending first, otherwise, it will face the risk of technological lag. Such an arms race-style investment may lead to a decline in the industry's overall return on capital. In addition, Meta's global daily active users have exceeded 3 billion, but the growth of monthly active users and daily active users has fallen to the mid-single digits. Under the ceiling of user growth, the expansion of advertising inventory is limited