Meta Plunges After Earnings, But Bank of America Stands Firm: Market Overreacted

According to TheStreet, Meta (META-US) has delivered five consecutive quarters of earnings above market expectations while driving one of the most aggressive AI investment programs in corporate history. The market had previously rewarded these dual positives, pushing the stock price higher. But on July 29, the situation shifted.

Meta released its second-quarter earnings after Wednesday’s market close, reporting earnings per share (EPS) of $6.18, below the expected $7.20. Following the news, the stock plunged nearly 9% in after-hours trading, falling to $542.

On the morning of the next day, Bank of America analyst Justin Post issued a new report stating that the market reaction was overdone.

Post slightly lowered Meta’s price target from $825 to $810, due to a 1% downward revision in GAAP EPS estimates for 2027—from $35 to $34.73.

He also modestly raised revenue forecasts for 2026 and 2027 but increased expense projections to reflect one-time costs, rising employee stock compensation, and higher interest expenses reducing other income. Valuation remains at 24 times estimated 2027 earnings.

At Meta’s post-earnings price of $542, the company trades at approximately 16 times 2027 estimated earnings. Excluding losses from Reality Labs, the P/E ratio drops to about 13 times. In comparison, the S&P 500 currently trades at around 20 times 2027 estimated earnings.

Post noted that Meta historically enjoyed a P/E premium of about 3x over the S&P 500, but now trades at a clear discount—precisely why he remains bullish on the stock.

Based on Meta’s closing price of $585.61 on July 30, the $810 target implies roughly 38% upside potential.

Post acknowledged that monetizing AI beyond advertising will take time. However, he believes that even if AI revenue growth falls short of expectations, Meta can significantly boost free cash flow by slowing down AI infrastructure spending.

Therefore, given current valuations, the upside potential outweighs downside risks under any scenario.

Bull-bear divergence persists.

Meta’s Q2 results did not alter the core debate surrounding the company. Bulls argue that Meta is building future consumer AI, enterprise software, and cloud computing infrastructure, while still maintaining one of the world’s largest digital advertising businesses.

Bears counter that the massive capital expenditures on AI may not yield sufficient return on investment to justify the costs.

The earnings miss provided fresh ammunition for bears. Yet, the strength of the advertising business continues to bolster confidence among bulls.

Post argues that the market is overly focused on Meta’s huge AI spending while overlooking early signs of returns. He will continue monitoring key developments such as the Watermelon model, the Connect conference, and the potential to offer AI compute services externally—critical indicators for validating whether Meta’s AI investments can translate into profits.

Meta’s stock rebounded over 3% on Friday (July 31), though it ended the week down about 8%.