Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Meta Is Becoming the Fastest Growing Megacap in Mid-2026
Transcript
- Lucas: Meta is up nearly ten percent this week, trading at six hundred sixty-one dollars. That's not a bounce — that's a statement. Luna: It's the best five-day run among the megacaps by a long shot. What's driving it this time? Lucas: A couple of things. First, the market is starting to price in another strong quarter from Meta's ad business — especially after some positive reads from digital ad agencies. Second, there's this growing recognition that Meta's AI investments are actually paying off faster than people expected. Luna: Right, the ai driven ad targeting. They've been talking about that for a while, but now the numbers are starting to show up. Lucas: Exactly. In the last earnings call, management flagged that ai powered recommendation systems increased time spent on both Facebook and Instagram by low double digits year-over-year. That translates directly into more ad inventory and better conversion rates for advertisers. Luna: So it's not just hype — there's a real flywheel effect. More engagement means more data, better targeting, higher ad prices, and then more revenue to reinvest in AI. Lucas: That's the bull case in a nutshell. And Meta's free cash flow generation is backing it up. Last quarter they reported over fifteen billion in free cash flow — that's approaching Apple's level on a relative basis, just with a lower market cap. Luna: Fifteen billion in one quarter. That's extraordinary for a company that was spending like crazy on the metaverse just a couple of years ago. Lucas: And that's the shift. Mark Zuckerberg declared 2023 the 'year of efficiency', and they've kept that discipline. Head count is still below peak, capital expenditure is being directed toward high roi projects like AI infrastructure, and they're buying back shares aggressively. Luna: Buybacks are a big part of the story. They reduced the share count by about three percent over the last twelve months. That alone adds to earnings per share growth. Lucas: Right. When you combine revenue growth in the mid-teens with buybacks and margin expansion, you get earnings per share growth that's outpacing revenue by a wide margin. That's the kind of compounding that concentrated portfolio investors love. Luna: And that's exactly what we've been talking about on this show — building a concentrated portfolio around high-conviction names. Meta right now seems to check a lot of boxes. Lucas: It does. But I want to be careful not to sound like a cheerleader. The valuation is not cheap. Meta trades at about twenty-four times forward earnings. That's above its five-year average, but still below where it was in 2021. Luna: So the question is whether the growth can justify that multiple. If they can sustain twenty percent earnings growth for the next few years, twenty-four times is reasonable. But if growth slows, the multiple could contract. Lucas: And that's the risk. Meta's ad revenue is cyclical. If we get a recession — and some economists are still worried about that — ad budgets get cut, and Meta feels it. Plus, regulatory risk in Europe and the U.S. hasn't gone away. Luna: But compared to other megacaps, Meta's growth rate is hard to match. Apple is growing revenue at low single digits. Microsoft is mid-teens but with a much higher multiple. NVIDIA is growing faster, but it's more volatile. Lucas: You know, speaking of volatility — Meta's stock has been anything but stable. It went from three hundred bucks in late 2022 to nearly five hundred in 2023, then dropped to the mid-threes last year, and now it's at six sixty. That's a wild ride. Luna: If our money conversations have helped you think about a decision differently — maybe about how you evaluate a stock like Meta, or how you think about concentration risk — that's exactly what we're here for. Lucas: It really is. And the way these episodes stay ad-free, week after week, is through listener support. If today was actually useful to you, you can buy us a coffee at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a simple way to keep this going. No pressure, just a thank you if you feel like it. Lucas: So back to Meta. One of the things I find most interesting is how they're using AI beyond just ads. They've rolled out ai powered content recommendations that are changing how users discover posts, Reels, and even long-form video. Luna: That's a shift from the social graph model to an interest graph model — more like TikTok than the old Facebook. It's working in terms of engagement, but it also changes the user experience. Lucas: And it opens up new revenue streams. They're testing mid-roll ads in Reels, which was not a thing two years ago. That's incremental inventory that didn't exist before. Luna: Let's talk about the competitive landscape. TikTok is still a threat, but less so with the regulatory pressure. And Snapchat is not really competing for the same ad dollars anymore. Lucas: Right. Meta's main competition now is actually from the other big platforms — Amazon and Google. Amazon's ad business is growing fast because it's commerce-based, and Google has search. Meta's strength is social and discovery. Luna: So Meta's moat is its user base — three point three billion daily active people across its family of apps. That's a scale that's hard to replicate. Lucas: It's a network effect, but it's also a data advantage. Every interaction trains their AI. And they're getting better at using that data without running into privacy issues, at least for now. Luna: One thing I keep hearing from investors is that Meta's management is more focused now than ever. Zuckerberg seems to have learned from the metaverse misstep and is laser-focused on ROI. Lucas: I think that's fair. The 'year of efficiency' wasn't just a one-off. They've embedded that discipline into how they allocate capital. They're still investing in long-term projects like the metaverse and AI research, but they're more disciplined about how much they spend. Luna: So for a stock picker building a concentrated portfolio, Meta offers a combination of growth, cash flow, and a management team that's aligned with shareholders. That checks a lot of boxes. Lucas: It does. But I'd add one caveat: concentration means you have to be right about the thesis over a long period. If you put ten percent of your portfolio into Meta, you need to be comfortable with that volatility. Luna: Exactly. It's not a set-it-and-forget-it stock. You have to monitor the ad cycle, regulatory changes, and competitive threats. But for those who do the work, it can be a core holding. Lucas: And that's really what stock picking is about — finding businesses where the upside outweighs the risks, and having the conviction to hold when the market gets nervous. Luna: Meta right now seems to be in that sweet spot. The question is whether it can stay there. Lucas: That's the million-dollar question — or in Meta's case, the trillion-dollar question. We'll see what earnings season brings.