That is the real divide. The ad business is running hotter, but Meta is also choosing to spend like a company trying to outrun time itself.

Morningstar said Meta raised its 2026 capital expenditure guidance to $125 billion to $145 billion from a prior range of $115 billion to $135 billion in its April 29 earnings release (Meta Investor Relations). In a separate January writeup, the firm said Meta had already been planning for $125 billion in capex and that the number had moved higher to $135 billion (Morningstar, May 6, 2026). The direction is the same either way. The market is being asked to fund a much larger AI buildout than it thought it would have to support a few months ago.

That is why the stock wobbled after earnings. Not because the quarter was weak. Because the bill got bigger.

Start with the part of the business that actually pays for all this. Meta’s Family of Apps delivered ad impressions up 19% year over year in Q1 2026, while average price per ad increased 12%, according to Meta Investor Relations on April 29, 2026. That combination matters. More impressions and better pricing at Meta’s scale suggests the ad engine is not just alive, it is still getting more efficient.

User engagement held up too. Family daily active people reached 3.56 billion in March 2026, up 4% year over year, according to Meta Investor Relations. Meta said the quarter-over-quarter dip was caused by internet disruptions in Iran and restricted access to WhatsApp in Russia, which is a useful reminder that not every movement in the numbers is a sign of deeper damage.

Morningstar argues that improved ad targeting and content recommendation algorithms, along with the monetization of Threads, Stories, and Reels, are helping Meta’s core advertising business structurally, not just cyclically (Morningstar, May 6, 2026). The same firm also noted that Meta has disproportionately benefited from higher spending by Chinese retailers, including Temu and Shein, and that a slowdown there could hit growth (Morningstar, Feb. 4, 2026). So yes, the ad machine is strong. It is also not insulated from concentration risk, which is the sort of detail markets tend to remember only after they have been surprised by it.

The fight over Meta stock valuation is really a fight over whether AI spending is a drag or a moat. Both sides can point to evidence.

On the numbers, the scale of spending is obvious. Meta reported capital expenditures of $19.84 billion in Q1 2026, according to Meta Investor Relations on April 29, 2026. Morningstar said the company’s updated 2026 capex guidance now runs from $125 billion to $145 billion (Morningstar, May 6, 2026). That is not just large. It is the sort of number that forces investors to rethink what “free cash flow rich” means in practice.

The pressure is already visible in margins. Morningstar said operating margin fell 90 basis points to 41% as AI-related costs rose (Morningstar, May 6, 2026). A 41% margin is still elite. A 41% margin that is narrowing is also a warning light, especially when management is telling shareholders that the spending curve is going higher, not flatter.

Still, Meta is not spending from a position of weakness. The company reported operating cash flow of $32.23 billion and free cash flow of $12.39 billion for the quarter, according to Meta Investor Relations. It ended the quarter with $81.18 billion in cash and marketable securities, which leaves it with room to invest without blinking first. Cash buys patience. Sometimes that is all it buys, but in a market like this, patience is not nothing.

Morningstar’s bull case is straightforward. It believes investors are underestimating Meta’s ability to use AI to lift revenue through better advertising tools and more engaging content, and says the company has the ingredients to monetize AI at scale (Morningstar, May 6, 2026). The firm points to Meta’s custom silicon, in-house models, and a distribution base with more than 3.5 billion users (Morningstar, May 6, 2026). That is a decent starting point for a moat argument. There are not many companies that can pour that much money into AI and still reach most of the internet on the way out.

The bear case is less glamorous and more uncomfortable. Reality Labs is still burning money, and Morningstar says Meta’s investments in Reality Labs and generative AI add a layer of uncertainty even as the ad business keeps generating substantial cash flows (Morningstar, Feb. 4, 2026). There is also not much hard evidence yet that all this AI capex is translating cleanly into incremental ad revenue. Some of the Q1 strength almost certainly reflects Meta-specific product improvements, and some of it may reflect broader digital ad strength too. That second point is analysis, not a sourced fact, but it is hard to avoid the question when one company is spending at this pace.

Morningstar’s fair value estimate for Meta is $850 per share, and the firm says that implies a 2026 adjusted price-to-earnings multiple of 30 times and an enterprise value-to-adjusted EBITDA multiple of 14 times (Morningstar, May 6, 2026). That is not bargain-bin pricing. It is a premium valuation justified by a wide-moat business with strong network effects and proprietary ad-targeting data (Morningstar, May 6, 2026).

Morningstar also forecasts Meta sales will grow at an 18% compound annual rate over the next five years, led mainly by higher average revenue per user, with user growth helping as well (Morningstar, May 6, 2026). That is the heart of the valuation case. If Meta can keep squeezing more revenue out of the same enormous audience, the current multiple starts to look less generous to skeptics than it did a year ago.

The catch is that this conclusion rests largely on one analyst’s framework. Morningstar has reiterated its $850 fair value estimate across several recent earnings cycles, but broad consensus, peer multiple work, and independent discounted cash flow sensitivity analysis are not part of the research set here. So the $850 figure should be treated as an informed estimate, not a verdict handed down from a mountain.

Morningstar also assigns Meta a High Uncertainty Rating (Morningstar, May 6, 2026). That fits the rest of the picture. The firm points to a US antitrust case that could force structural changes, regulatory scrutiny of recommendation algorithms, privacy and security exposure tied to user behavior data, and the ongoing drain from unprofitable ventures such as generative AI and Reality Labs (Morningstar, Feb. 4, 2026; Morningstar, May 6, 2026). That is a wide risk set. Nobody should pretend otherwise.

This is why the stock’s pullback feels so loaded. Investors are not just reacting to one quarter’s capex number. They are deciding whether Meta’s AI era will look more like a margin headache or a durable extension of its ad monopoly.

Morningstar went into earnings saying Meta’s first quarter should be impressive on advertising, with growth near 30%, and that 2026 may be the first year its ad sales exceed Alphabet’s on a net basis (Morningstar, April 23, 2026). That is the sort of claim that can make even a skeptical investor look twice. If it happens, the AI spend will start to look less like a vanity project and more like the machinery behind a new competitive high ground.

The more immediate point is simpler. Meta is not a deteriorating business trying to buy time. It is a strong business choosing to absorb more uncertainty in exchange for a shot at even more scale. That can be a smart bet. It can also be an expensive one.

Meta’s Q1 results strengthen the bull case more than they weaken it. Revenue rose 33%, ad pricing improved, impressions climbed, and the company still generated plenty of cash even with higher investment spending (Meta Investor Relations, April 29, 2026). That is not what a broken business looks like.

But the question of is Meta stock a buy depends on the part of the story that comes next. If AI spending unlocks better monetization across Meta’s app family, the stock probably deserves to look cheaper than it does today. If the spending keeps outrunning the payoff, the valuation debate will stay messy for a while.

Meta has guided second-quarter 2026 revenue to $58 billion to $61 billion, according to Meta Investor Relations on April 29, 2026. The next real test is whether margins can hold up as that growth comes through and the higher capex guidance starts to bite in earnest. That will tell investors more than another clean earnings headline ever could.