Deutsche Bank's report on Meta (META, Financial) highlights the significance of AI-driven capital expenditure as a focal point for investors, with a particular emphasis on cost pressures. The bank maintains a "buy" rating for Meta, projecting a target price of $770 based on a 26x P/E ratio and expected 2026 GAAP EPS of $30.22.
Meta is heavily investing in AI talent and infrastructure, resulting in high operational and capital expenditures. While revenue growth is promising, short-term profit gains through cost-cutting are unlikely. Future growth hinges on AI investments translating into substantial revenue increases.
Meta's advertising revenue has exceeded expectations, driven by AI tools like Advantage+, which improve advertisers' return on ad spend (ROAS). Despite a decline in ad spend from Chinese e-commerce due to U.S. tariff policies, overall industry spending remains robust, with some recovery since mid-May.
Deutsche Bank notes that AI has also enhanced user engagement on Meta's core apps, supporting sustained ad impression growth. The newly launched Meta AI app has seen over 11 million downloads globally, indicating strong user acceptance.
Despite positive revenue trends, market attention is shifting to Meta's expenses. The aggressive AI expansion has led to significant cost pressures, with 2025 fiscal year expenses expected to be between $113 billion and $118 billion. Capital expenditure guidance, including hardware cost inflation, is also under pressure, projected at $64 billion to $72 billion for the same period.
