Meta Platforms reported strong third-quarter earnings, with sales up 26% to $51 billion and operating margins at 40%. Capital expenditures, mostly on AI, are projected to exceed $100 billion next year. Ad business performance attributed to increased use of AI, ad inventory growth, and strong engagement.

Two main drivers of ad sales for Meta are volume and price. Daily users grew by 8% to 3.54 billion. AI investments key to improving ad targeting, driving higher returns on ad spending, and increasing ad prices by 10%. Despite higher-than-expected expenditures, fair value estimate remains at $850.

Investor concerns over AI investments after past misallocations. Meta’s strategic investment in own foundation models deemed economically feasible compared to using external models at scale. Shares trading down post-earnings, viewed as undervalued by Morningstar Equity Research. No securities owned by authors mentioned in article.

Read more at Morningstar: Meta Earnings: Ad Revenue Momentum Is Strong, but an Avalanche of AI Costs Are Coming in 2026