Meta Platforms (NASDAQ:META) started off 2025 strong, posting 16% revenue growth in the first quarter to $42.3 billion. By the third quarter, revenue surged 26% year-over-year to $51.2 billion, driven by robust advertising demand. However, doubts emerged as Meta ramped up artificial intelligence (AI) investments, with capital expenditures expected to reach $70 billion to $72 billion for the year. 

To fund this, Meta issued $30 billion in bonds in October, as free cash flow of $58.8 billion could no longer fully cover the outlays. Investors balked, fearing a repeat of the metaverse debacle, where Reality Labs racked up billions in losses. The stock, which had surged 66% off its tariff-induced lows in April, stalled and shares now sit 17% off those highs, just 12% above where they started in 2025.

Yet, this skepticism creates an opening for investors as Meta is poised to emerge as the unexpected AI leader in 2026.

AI Boosting Ad Performance

Meta has leveraged artificial intelligence to enhance its core advertising business, addressing challenges like the tumult caused by Apple‘s (NASDAQ:AAPL) privacy updates in 2021. AI-powered recommendation algorithms have improved ad relevance, leading to a 10% year-over-year increase in average price per ad in the third quarter. This has driven double-digit gains in conversion rates and pricing power. 

Tools like Advantage+ campaigns, which automate targeting and creative generation, have generated over $60 billion in annual run rate, with advertisers seeing a $4.52 return per dollar spent. These advancements position Meta as an efficient AI player in digital advertising.

Tapping WhatsApp’s Untapped Value

WhatsApp, with over 2 billion users, represents a key growth asset for Meta. In 2025, the company introduced ads in the app’s Status updates and Channels feature, including promoted search placements and subscriptions. Channel administrators can now charge monthly fees for exclusive content, with Meta taking a 10% cut. This builds on existing business tools, encouraging greater adoption as a commercial platform. 

Analysts project these efforts could add significant revenue, with business messaging becoming a multi-billion-dollar stream. With per-message pricing adjustments and AI integration, WhatsApp’s monetization is set to accelerate in 2026.

Importantly, Meta is reducing spending in its Reality Labs division, which has incurred over $70 billion in losses since 2021. Executives planned cuts of up to 30% for the metaverse group in 2026, potentially including layoffs and project halts. This shift reallocates resources from virtual worlds like Horizon to AI wearables, such as smart glasses. Third-quarter 2025 operating losses were $4.4 billion, down slightly year-over-year, but still a drain. The move aims to curb inefficiencies while maintaining focus on profitable innovations.

Moreover, Meta’s Ray-Ban smart glasses have seen strong demand, with sales tripling in the first half of 2025 compared to the prior year. New models, including those with displays and AI features like real-time translation, launched in late 2025. Shipments of AI glasses are projected to reach 4 million units in 2025, capturing about 80% market share. This success in wearables provides a hardware platform for AI experiences, differentiating Meta from pure software competitors.

Valuation Hints at Opportunity

Meta’s stock trades at a forward P/E of around 22, with a PEG ratio near 1.5, reflecting expected earnings growth. This metric suggests the market undervalues its potential relative to peers. Analysts forecast revenue of approximately $235 billion in 2026, implying about 18% growth, and it follows the 21% expansion Wall Street expects for 2025. Management is looking for fourth-quarter revenue to come in a range between $56 billion and $59 billion, implying 19% to 22% growth. 

Key Takeaway

Meta’s AI strategy carries risks, especially if the boom stalls due to economic pressures or regulatory scrutiny. Nothing grows forever, as we’ve seen with other technological innovations course correcting at some point, and Meta faces intense competition and cash flow pressure from its capital spending plan. Expenditures are expected to significantly rise in 2026. 

Yet, as the earnings reports of the chipmakers indicate, there is no slowdown over the horizon and Meta is enjoying the benefits of accelerating ad revenue, WhatsApp monetization, and increasing momentum with wearables. With tools like cost reductions in Reality Labs and greater AI efficiencies, Meta Platforms seems perfectly positioned to surprise the market and become the sleeper AI winner in 2026.