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LivestreamMenuShares of Meta Platforms slid more than 11% in extended trading Wednesday after the social media giant reported an earnings miss and disappointing guidance. Even so, we remain buyers, though with a bit more caution. Revenue in the second quarter rose 28% year over year to $60.8 billion, more than $2 billion ahead of the analyst consensus estimate of $58.7 billion compiled by LSEG. Adjusted earnings per share fell 13.4% from the year-ago period to $6.18, which was short of the $7.22 expected, according to LSEG. Bottom line Let’s get right to the quarter’s black eye — the EPS miss — and why we think the market may be overreacting. In the results, Meta disclosed that total costs and expenses in the quarter included a $2.4 billion legal charge, along with a $1.18 billion severance expense related to the company’s layoffs in May. Those are considered one-time costs. Most companies adjust one-time costs out and provide a non-GAAP number to better reflect ongoing operational results. But since Meta reports GAAP numbers — a plus in our book — it doesn’t include an adjustment. Consider what the results would have looked like without the one-time charges. Starting with the reported operating income result of $18.775 billion, we add back the $3.58 billion in charges noted above and get an adjusted operating income result of $22.355 billion, which would have beaten expectations and represented growth of more than 9% versus the year-ago period. Moreover, that would indicate an adjusted operating income margin of 36.77%, also a beat. The earnings miss isn’t ideal, but it’s also not a reflection of any underlying change in fundamentals or an operational misstep. The other big topic that’s likely to dominate Wall Street coverage tomorrow is the spending guidance. Why we own it Meta Platforms is dominant in the world of targeted digital advertising with excellent technology. Strong user engagement makes its platforms great places for ads. Meta’s scale provides the financial power and attracts the talent needed to pursue growth avenues such as artificial intelligence. Competitors : Alphabet , TikTok, and Snap Weight in portfolio : 4.47% Most recent buy : Nov. 10, 2025 Initiated : May 29, 2014 In recent weeks, the market has turned on the AI trade. Investors are increasingly concerned that hyperscalers, including Meta, are spending too much money building out their AI infrastructure, as well as with the way some are choosing to fund it, via bond sales and equity offerings. They got a pass in the early days of the buildout — when free cash flow remained positive. Things have changed, and the market has started to punish big tech companies with seemingly endless appetites for more compute. It’s not only that the billions of dollars in free cash flow have evaporated into the AI clouds, but also that companies are still looking to increase spending. For its part, Meta surprised with an inflow this quarter. The result was still down about 91% versus the year-ago period, despite a nearly 25% increase in operating cash flow. A beat, nonetheless. However, it’s the spending guidance, specifically capital expenditures (capex), that is likely triggering the selling. Meta maintained the high end of its full-year capex guidance of $145 billion, but it raised the low end to $130 billion from $125 billion — raising the midpoint to $137.5 billion from $135 billion. The Street was projecting capex of $134.6 billion. It’s not a huge increase, but a raise to capex is not what analysts and investors want to hear right now. META 1Y mountain Meta 1-year stock performance We expect shares to remain under pressure. The stock is approaching the lows in late March following the start of the Iran War — a level that has also proven a good buying opportunity going back to late 2024. As a result, we are reiterating our 1 rating. However, the price action is simply too hard to game right now, especially at a time when it looks like the conflict with Iran could ramp back up, even if only short-term. We want to wait for the sellers to finish. Acknowledging the negative sentiment in the AI trade, we are cutting our price target to $700 from $750. Commentary Here are some highlights from the results: Global average price per ad increased 12% year over year, while the ad impressions delivered across the family of apps increased 14%. Family daily active people missed expectations; however, we were happy to see sequential improvement after a slight sequential dip in the prior quarter. Family average revenue per person beat analysts’ expectations. On the conference call with investors, Zuckerberg said: Instagram reached 2 billion daily actives, Threads crossed 500 million monthly actives, making it the fastest-growing conversation app ever. Facebook has reached more than 2 billion daily actives “for a while now.” WhatsApp recently hit an all-time messaging record, peaking at 30 million messages sent per second during the World Cup final. Nine million small businesses on Meta’s platforms now use at least one of the company’s AI ad creative tools. Since rebuilding Meta AI and integrating Muse Spark, the team has seen a 60% increase in the number of people interacting with the assistant each day, and “that continues to grow quickly week over week.” For the first time, quarterly family of apps, other revenue reached $1 billion and grew 73% year over year, driven primarily by WhatsApp, paid messaging, and subscription, CFO Susan Li said. Reality Labs benefited from strong AI glasses growth, partially offset by lower sales of Quest headsets Li said that Meta continues to see significant gains from its content recommendation initiatives on Instagram, adding that global time spent this quarter grew double digits over last year, largely driven by improvements to its feed and Reels recommendations on Facebook. Video time spent increased 9% globally year over year and over 10% within the United States and Canada, driven by ranking improvements. Li said that large language models (LLMs) are increasingly capable of delivering ranking and recommendations gains. Meta cloud? Regarding the rumors of a public cloud offering from Meta, management only hinted that it was an option in the future. First off, others are coming to Meta to rent out compute. As CEO Mark Zuckerberg noted on the call, Meta has a number of offers at “a meaningful premium over what we paid for the compute.” The issue, he said, is that “we believe that there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly. But we think that there’s a big opportunity obviously to sell compute as well.” Put another way, Meta thinks the ROI on using the compute internally and selling the proprietary LLMs it develops is likely better than the ROI realized selling raw compute. That said, ROI isn’t the only reason to stand up a cloud business, and it seems the team also understands the hedging dynamic a public cloud could provide. Guidance Meta projected current (third) quarter revenue of $61 billion to $64 billion, missing the $63.15 billion consensus estimate at the midpoint, according to LSEG. For full-year 2026, the company increased its projected total expenses to between $165 billion and $169 billion, up from $162 billion to $169 billion, reflecting the $2.4 billion legal charge noted above. That exceeds the $158.5 billion analyst estimate, according to FactSet. Capital expenditures for the full year are now expected to reach $130 billion to $145 billion, an increase on the low end from the prior range of $125 billion to $135 billion, and surpassing the $134.56 billion expected, according to FactSet. (Jim Cramer’s Charitable Trust is long META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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