Investors seem to have forgotten that Meta's (META) ambitious AI capital expenditures drilled the stock when the company reported first quarter earnings in April.
And there are two reasons why sentiments have turned around since then.
Quick insight: The bulls are circling Meta ahead of its July 29 earnings report, in part because of potential profit upside from massive cost cuts.
"With 10% workforce reduction in May and job postings down 49% quarter over quarter in 2Q, we expect EPS upside," BofA analyst Justin Post said in a note.
The other component is the potential for CEO Mark Zuckerberg to signal strong demand for 2027, helped by a new tie-up with Anthropic (ANTH.PVT) on compute.
Post added, "Following reports of a potential compute deal with Anthropic, we are adding $5 billion in 2027 revenues for additional AI capacity benefits (expect monetization via ads, subscriptions or enterprise sales)."
Meta stock has rallied 12% in the past month, outperforming the slight decline in the S&P 500 (^GSPC) during that same stretch. The stock surpassed its late April lows while also rising above its key 200-day moving average earlier this month, Yahoo Finance AlphaSpace data shows.
The stock is still down 2% on the year, however.
AlphaSpace check-in: A pedestrian valuation for Meta could also be enticing to the bulls. Meta shares are trading at a forward P/E multiple of 20.75 times, below the seven-year average of 22 times, per Yahoo Finance AlphaSpace data. Investors may think the worst has been priced into the stock when it comes to AI capital expenditures.
Post noted, "We think current valuation underappreciates AI capacity benefits for the core and new businesses and sentiment and stock performance from here can be driven by: 1) Growing visibility on new rev. streams (Model licensing, Subscription, Business Agents, etc.), 2) Advertising revenue upside from LLM integration, 3) LLM improvements toward frontier capabilities, and 4) Chip progress that could drive optimism on future cost savings."
Bottom line: Investors who have jumped back into the stock would be wise not to forget that Meta is a company in full-on invest mode. Meta could very easily lift its capital expenditures plans for 2026 when it reports on July 29, which could once again send the stock reeling.
Brian Sozzi* is Yahoo Finance's Executive Editor, host of the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.*
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