Portfolio: Zacks Focus List, Zacks Bull Tilt

Meta’s core investment thesis centers on its AI-driven transformation of digital advertising combined with exceptional profitability and scale. The company’s family of apps reaches nearly 4 billion daily active users, generating unmatched data assets that fuel AI improvements across content recommendations and ad targeting. These AI enhancements are delivering tangible results—Q2 2025 saw engagement increase 5-6% on Facebook and Instagram, while operating margins expanded to 43% despite $60-65 billion in planned 2025 AI infrastructure investments. The company generated $47.5 billion in revenue (up 22% YoY) and $18.3 billion in net income in Q2 2025, demonstrating it can invest heavily in future capabilities while maintaining industry-leading profitability. This creates a powerful flywheel where more users generate better data, which trains superior AI models, which improve user experience and ad performance, attracting even more users and advertisers.​

Beyond the core business, Meta offers significant optionality through emerging revenue streams that aren’t fully priced in at current valuations. WhatsApp and Instagram messaging represent largely untapped monetization opportunities, while Meta AI has already reached 1 billion monthly active users. Trading at a forward P/E of just 24x for high-teen to low-20s growth rates with 40%+ operating margins, the valuation appears reasonable for a cash-generative business with strong network effects and AI-enhanced competitive moats. Key risks include Reality Labs’ ongoing losses ($4.5 billion in Q2 2025), heavy capital expenditure requirements, regulatory pressures, and 98% revenue concentration in advertising. However, Meta does not need AI to work; the core business already supports the valuation, making AI upside and messaging monetization essentially free options at current prices for long-term investors.​