META's 2Q26 results were broadly solid, but management still needs to provide further clarity on the return profile of AI investments

Overview

This report is Goldman Sachs' preliminary review of Meta Platforms Inc.'s 2Q26 results. The report notes that META's revenue performance was solid and its advertising business continued to grow, but relative to investors' elevated recent expectations for returns on AI investment, the results and guidance may not be sufficient to provide a positive upside catalyst; therefore, the initial market reaction is expected to be negative.

Core views

The core view is that META's 2Q results show that AI compute is being applied to the core business, but have not yet fully demonstrated the excess returns recently anticipated by the market. How management explains the duration of elevated capital expenditure, expense offsets, margins and free cash flow, as well as non-core initiatives such as agentic products, compute leasing or commercialization, during the earnings call will determine whether the subsequent narrative can develop linearly.

Analysis framework

The report compares actual results with Goldman Sachs' estimates, Visible Alpha market expectations and company guidance, focusing on revenue, advertising revenue, regional revenue, operating profit, EPS, expense guidance, capital expenditure guidance and the price target valuation framework. For valuation, the $815 12-month price target is based on an equal-weighted blend of an EV/GAAP EBIT framework and an adjusted DCF framework.

Methodology notes

• Valuation methodsEV/GAAP EBIT and Adjusted DCF Blended Valuation

  Price target valuation

  Goldman Sachs' $815 12-month price target is based on an equal-weighted blend of two components: applying an EV/GAAP EBIT multiple to the NTM plus one-year forecast, and constructing an adjusted DCF using an EV/FCF-SBC multiple, with the NTM plus four-year forecast discounted back three years.

• factor_profileGS Factor Profile

  Growth, financial returns, valuation multiples and composite percentile

  The Goldman Sachs Factor Profile compares stocks with the market and industry peers across growth, financial returns, valuation multiples and composite metrics. The composite percentile is the average of the growth percentile, financial returns percentile and 100% minus the valuation multiples percentile.

• scenario_riskM&A Rank

  Potential acquisition probability score

  Goldman Sachs evaluates the probability of a covered company becoming an acquisition target on a scale of 1 to 3, with 1 representing high probability, 2 representing medium probability and 3 representing low probability; companies ranked 1 or 2 have M&A factors incorporated into their price targets.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META.US

  Covered security; US internet content and information industry stock

  Strengths

  Advertising revenue continues to grow strongly, while Family of Apps revenue and profit are substantial; 2Q total revenue grew 28% year over year.

  Weaknesses

  2Q EPS was below Goldman Sachs' and market expectations, Reality Labs posted a sizable loss, and expense and capital expenditure guidance remain elevated.

  Comparison

  2Q revenue was above GSe and Street, while operating profit and EPS were below both; the high end of 3Q revenue guidance is close to GSe and broadly in line with Street overall.

  Risks

  AI and long-term project investments could weigh on margins; regulatory, competitive, advertising demand and new commercialization pathways remain uncertain.

Key data

• 2Q total revenue$60.80bnUp 28% year over year, above GSe of $60.24bn and Visible Alpha Street of $60.36bn, and within the company's guidance range of $58.0-61.0bn.
• Family of Apps revenue$60.37bnUp 28% year over year; advertising revenue was $59.36bn, up 27% year over year and 26% year over year on a constant-currency basis.
• Reality Labs revenue$431mmUp 17% year over year.
• 2Q total daily active people3.60bnQ2 total daily active people as disclosed in the report.
• 2Q GAAP operating profit$18.78bnBelow GSe of $19.98bn and Street of $21.50bn; consolidated GAAP operating margin was 31%.
• Family of Apps GAAP operating profit$23.39bnCorresponding to a 39% operating margin.
• Reality Labs GAAP operating loss$(4.62)bnContinued to weigh on the consolidated operating margin.
• 2Q GAAP EPS$6.18Below GSe of $6.75 and Street of $7.20.
• 3Q26 revenue guidance$61.0-64.0bnThe high end is close to GSe of $64.06bn, versus Street at $63.05bn; the company expects foreign exchange to have an approximately 100-basis-point negative impact on year-over-year growth.
• FY2026 GAAP total expense guidance$165.0-169.0bnPreviously $162-169bn; the increase at the low end reflects a one-time $2.4bn expense related to legal proceedings in 2Q.
• FY2026 capital expenditure guidance$130-145bnPreviously $125-145bn; GSe was $140.03bn and Street was $136.72bn.
• 12-month price target$815Based on an equal-weighted blend of EV/GAAP EBIT and adjusted DCF valuation.

Impact & implications

The near-term impact is cautious: revenue and guidance did not significantly exceed the market's recent high expectations for AI returns, while elevated expenses and capital expenditures could weigh on sentiment. The medium- to long-term implications remain positive: the core advertising business continues to grow rapidly and AI applications are entering the core business, but investors need more evidence to determine whether AI investment can translate into higher revenue, margins and free cash flow.

Risks

• Increasing competition for user growth, user engagement and advertising budgets.
• Large investments in long-term projects could suppress margins for longer than Goldman Sachs expects.
• Insufficient or lower-than-expected incremental shareholder returns.
• Regulatory scrutiny and industry practice risks.
• Inability to effectively commercialize upside opportunities.
• Changes in the macro environment could affect future revenue growth rates.

What to watch

• Management's explanation on the earnings call regarding the pace of change and duration of elevated capital expenditures.
• Whether operating expense restructuring measures exist that can offset investment pressure.
• The company's latest commentary on margins, free cash flow and potential needs for debt or equity financing.
• Whether non-core platform and product initiatives, such as agentic products, compute leasing or compute commercialization, can establish a clear revenue and return path.
• The transmission of advertising demand and the macro environment into subsequent revenue growth rates.