Meta 2Q26 earnings: AI monetisation may take longer, yet the sell-off offers 89% upside potential

• Meta reported strong 2Q26 results, with revenue rising 28% YoY to USD 60.8 billion, while reported operating income fell 8.2% to USD 18.8 billion due to USD 2.4 billion in legal charges and USD 1.2 billion in severance costs.

• Meta expects 3Q26 revenue of USD 61–64 billion, with the midpoint of USD 62.5 billion falling below consensus estimates of USD 63.2 billion, while narrowing its 2026 capex guidance to USD 130–145 billion from USD 125–145 billion previously.

• Meta is expanding AI monetisation beyond advertising through consumer AI subscriptions, paid access to its AI models for developers and Business Agents, while taking a selective approach to compute leasing and prioritising its own AI models and products.

• AI-driven improvements in content recommendations and advertising efficiency continue to support strong engagement, ad volumes and pricing, reinforcing advertising as a key engine for funding Meta’s AI investments.

• Despite near-term headwinds from AI investment and litigation, we maintain our positive long-term view, with a USD 1,018 target price implying roughly 89% upside from Meta’s 30 July 2026 closing price of USD 593.

2Q26 earnings highlights

Meta reported 2Q26 revenue of USD 60.8 billion, up 28% year-over-year (YoY) and slightly ahead of consensus estimates of USD 60.2 billion.

Family of Apps advertising revenue rose 27% YoY to USD 59.4 billion, while Family of Apps other revenue increased 73% YoY to USD 1 billion, driven largely by growth in WhatsApp paid messaging and subscription revenue. Reality Labs revenue grew 16% YoY to USD 431 million, supported by strong growth in AI glasses revenue, partially offset by lower Quest headset sales.

Operating income, however, fell 8.2% YoY to USD 18.8 billion, significantly below consensus estimates of USD 21.5 billion. This was primarily due to USD 2.4 billion in charges related to legal proceedings and USD 1.2 billion in severance expenses tied to the company's headcount reduction in May this year. Excluding these expenses, operating income would have risen 9.0% YoY to USD 22.4 billion, above consensus estimates.

Diluted earnings per share (EPS) of USD 6.18 likewise came in below consensus estimates of USD 7.15, reflecting the impact of the legal and severance expenses.

The legal charges relate to lawsuits surrounding youth safety and addiction. Trials scheduled for this year in the US "may ultimately result in a material loss", a risk that Meta had previously highlighted during its 1Q26 earnings call. CFO Susan Li characterised the ongoing litigation as being based on "untested legal theories" and said that any potential liability remains "speculative" at this stage.

Free cash flow declined sharply to USD 784 million in 2Q26 from USD 8.55 billion a year earlier, reflecting elevated AI infrastructure spending.

Table 1: Meta Q2 earnings

	2Q26	2Q25	Beat/Miss vs Estimate	YoY change
Revenue	60,801	47,516	0.9%	28.0%
Operating Income	18,775	20,441	-12.8%	-8.2%
Net Income	15,848	18,337	-14.3%	-13.6%
Earnings per Share	6.18	7.14	-13.5%	-13.5%
Source: Meta 2Q Press Release, Bloomberg. Data as of 30 July 2026. Figures are in USD millions except percentages and per share amounts.

Looking ahead, Meta expects third-quarter 2026 revenue of USD 61–64 billion, with the midpoint of USD 62.5 billion below consensus estimates of USD 63.2 billion. This implies YoY growth of 22%, slowing from 28% in 2Q26 and 26% in 3Q25.

Management attributed the softer guidance to several factors. First, the company is lapping a quarter of accelerated impression growth that benefited from engagement-related ranking improvements, particularly on Instagram Feed and Reels, as well as ad load optimisation on Instagram Feed and Stories. Second, the full rollout of less personalised ads in Europe is expected to create an additional headwind. Meta also expects continued "integrity enforcement efforts" — measures to combat inauthentic activity, spam, scams and other policy-violating content — to weigh on growth.

For full-year 2026, Meta raised the lower end of its expense guidance from USD 162 billion to USD 165 billion, with the latest guidance standing at USD 165–169 billion, reflecting the USD 2.4 billion legal charge noted above.

The company also narrowed its 2026 capital expenditure guidance to USD 130–145 billion from USD 125–145 billion previously, raising the midpoint to USD 137.5 billion from USD 135 billion.

Meta is making progress towards monetising AI beyond advertising

Since the previous quarter, Meta has taken steps to monetise relatively nascent segments of its business. This includes the launch of Meta One, a consumer chatbot subscription similar to peers like ChatGPT and Claude, as well as a pay-to-use AI model for developers.

Related article: Meta isn’t just spending billions on AI—It’s building multiple ways to profit from it

In the second-quarter earnings call, Meta also announced plans to begin charging businesses for Meta Business Agent usage through a combination of subscriptions and volume-based token pricing in the second half of this year. Over time, however, it plans to evolve these products towards a model similar to its advertising business, where businesses would only pay when Meta achieves specific results for them. With more than 1 million businesses already using Business Agents to engage customers on WhatsApp and Messenger, and soon Instagram, we see significant monetisation potential as these services scale. As such, we expect Meta's Family of Apps other revenue to continue growing at a high double-digit pace.

On the consumer front, Meta is developing personal AI agents that could "work 24/7 on your behalf to help achieve your goals and improve your life, your health, your relationships, your finances - whatever you want." While details remain limited on how these personal agents will function or be integrated into users' daily lives, we believe Meta is well positioned to embed them across its ecosystem of apps. This could create another avenue for monetisation through Meta One subscriptions, while potentially driving demand for its AI glasses, which the company considers "the ideal form factor" for assisting users throughout the day. The company continues to see strong sales of its AI glasses, with its new line of Meta glasses developed in collaboration with EssilorLuxottica delivering better-than-expected sales.

In terms of leasing raw compute, however, Meta's strategy appears to be more opportunistic. While the company has received a large number of offers from companies willing to pay a meaningful premium for access to its compute capacity, management believes that "there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly." That said, Meta appears willing to selectively monetise its compute capacity where the economics are compelling. For example, the company is reportedly in early talks to rent its computing power to AI lab Anthropic in a deal that could be worth as much as USD 10 billion over two years.

We believe such deals will ultimately remain opportunistic, pursued only when the returns justify doing so, with Meta maintaining the majority of its compute capacity to power and build its own models and products. In our view, this is the right strategy, as it allows the company to selectively monetise compute capacity in the near term without compromising its longer-term AI ambitions. We therefore expect compute leasing to remain a complementary revenue stream rather than evolve into a full-fledged hyperscale cloud business.

AI-driven improvements continue to strengthen Meta's core advertising business

Meta continues to see strong gains from its AI-powered content recommendation initiatives, which are driving higher user engagement. In 2Q26, global time spent on Instagram grew by double digits YoY, largely driven by improvements to Feed and Reels recommendations, while Facebook video time spent rose 9% globally and more than 10% in the US and Canada, driven by ranking improvements.

Stronger engagement is translating into higher ad volumes, with total ad impressions increasing 14% YoY in 2Q26. At the same time, improvements to Meta's advertising models are delivering better outcomes for advertisers, with model enhancements generating an 8.3% increase in ad clicks and a 15.7% uplift in conversions on Facebook. As a result, the global average price per ad increased 12% YoY, reflecting stronger ad performance and advertisers' willingness to pay more for better returns.

Taken together, continued gains in user engagement and advertising efficiency are supporting strong growth in Meta's core advertising business. We expect this to remain an important cash flow engine to fund the company's significant AI investments while its newer non-advertising businesses scale and begin to deliver returns.

Near-term headwinds do not alter our positive long-term view

Meta's shares fell 7.5% the day after its earnings release, likely reflecting weaker-than-expected 3Q26 revenue guidance and an increase in the lower end of its 2026 capital expenditure guidance. Investors hoping for near-term returns from leasing out raw compute may also have been disappointed, as Meta continues to prioritise compute capacity for its own AI models and products rather than pursuing more aggressive external monetisation.

We view this strategy positively, as it reflects Meta's focus on building its long-term AI capabilities rather than pursuing near-term gains to appease investors. That said, this approach requires investors to be more patient in waiting for returns on Meta's significant AI investments.

Litigation remains a near-term headwind and could weigh significantly on earnings in the near term. However, as we previously argued, we believe the longer-term risks remain manageable. Meta continues to work with regulators to implement youth safety initiatives, while teenagers represent a relatively small share of its overall monetisable user base. Furthermore, tighter national regulations in the US could paradoxically reinforce Meta's competitive position, as larger platforms are better positioned to absorb higher compliance costs than smaller competitors.

We have lowered our 2026 EPS estimates to account for higher legal expenses but maintain our longer-term 2027 and 2028 EPS projections. Overall, we are encouraged by the progress Meta is making in monetising its non-advertising businesses while continuing to deliver strong growth in its core advertising business, even as it invests aggressively in AI. We maintain our target price of USD 1,018 for Meta, implying upside potential of 89% from its closing price on 30 July 2026.

Table 2: Projections for Meta’s earnings

Meta Platforms	2025	2026E	2027E	2028E
Earnings Per Share (EPS)	29.3	32.7	36.5	44.3
Earnings Growth YoY	22.3%	11.4%	11.7%	21.4%
PE Ratio (X)	22.5	16.5	14.8	12.2
Target Price (based on a fair PE of 23X)				1018
Upside Potential				89.0%
Source: Bloomberg Finance L.P., iFAST Compilations. Data as of 30 July 2026

Figure 2: Share prices are driven by earnings growth in the long run

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds a position in Meta Platforms.