Meta's stock may actually be an overlooked AI winner. Why bulls say to buy the dip.

By Christine Ji

Meta's AI spending concerns are overblown, according to Morgan Stanley, who sees potential for the stock to surge to $1,000

Meta's forward price-to-earnings multiple has compressed to 22x in recent months, making it significantly cheaper than rival Alphabet, according to Morgan Stanley.

Meta Platforms' aggressive artificial-intelligence spending plans have caused shareholders a lot of grief this year, as the stock has sold off over the last few months. But that selloff has presented a prime opportunity to buy a "Magnificent Seven" winner for cheap, according to Morgan Stanley's Brian Nowak.

Although he lowered his price target on shares of Meta (META) to $750 from $820 on Thursday, Nowak maintained his overweight rating and urged investors to look past excessive negative sentiment going into 2026.

While Meta's forward price-to-earnings multiple reached a peak of 28x earlier this year, the recent selloff has brought it down to 22x. Meanwhile, investors have piled into Alphabet (GOOGL) (GOOG), sending its forward P/E multiple to 28x.

Nowak called the the run-up in Alphabet "overdone," adding that "Meta remains one of a handful of companies that can leverage its leading data, distribution and investments in AI to drive earnings power and tech leadership."

Meta has plenty of room to deliver a return on investment on its AI spending, according to Nowak. Last quarter, the company grew its revenue by 26% year over year thanks to AI-enhanced advertising algorithms, a trend that Nowak believes will continue and lead to upward revenue revisions. Nowak's 2026 and 2027 revenue estimates for Meta are 2% and 4% higher than the Wall Street analyst consensus, and he sees the company's revenue hitting roughly $285 billion by 2027.

For Meta's stock to bounce back, the company needs to give investors a clearer picture on its operating margins. Nowak estimates its operating expenses could climb to $155 billion in 2026, a 5% increase from his prior model, due to higher depreciation and infrastructure costs. However, he sees Meta's official guidance on its upcoming January 2026 earnings call as a potential "clearing event" that could establish an earnings floor of $30 per share next year, bringing "incremental tactical buying" back to the stock.

Reports of proposed cuts and layoffs in the company's metaverse division, which includes its virtual- and augmented-reality products, are another positive sign for Meta's margins. Morgan Stanley hasn't included any headcount reductions in its current projections, leaving room for more upside to the firm's earnings estimates.

See more: Meta's stock pop could be just the start as Zuckerberg takes aim at 'black hole' of spending

Part of Meta's aggressive spending plans this year were for poaching top AI talent for the company's new Superintelligence team. While Wall Street has brushed off the potential impact, Nowak believes this unit holds the biggest upside - potentially driving the stock up to $1,000.

A recent Bloomberg report suggested that Meta could launch a new closed-source frontier model next spring, which Nowak believes has the potential to mirror the disruption caused by Chinese AI platform DeepSeek. Such a development would be a welcome change from earlier this year, when Meta's open-source Llama 4 model failed to impress investors.

"The most important catalyst for Meta's multiple in [2026] will come down to its LLM model and product innovation from the Superintelligence team," Nowak wrote. In a bull case, the Superintelligence team could send Meta's P/E multiple to 27x by 2027, according to Nowak.

Read: Meta's stock is the new 'Magnificent Seven' doormat. Should you buy the dip?

-Christine Ji

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12-11-25 1406ET