Meta (META.US) Soars 36% in September: Muse Validates AI Strategy, Market Cap Eyes $2 Trillion

Meta Platforms (META.US) stock has finally staged a breakthrough. Shares of the Facebook parent surged 36% in September after the company released its personal AI assistant, Muse. The assistant quickly climbed to the top of U.S. app rankings and eased market concerns that massive AI spending would fail to generate returns. Meta's stock is on track for its best monthly performance since July 2013, and is just about 1% away from joining the $2 trillion market cap club. Muse Becomes the Catalyst, Stock Stages Dramatic Reversal "For the past year and a half, Meta's stock has been essentially flat as people were uncertain whether AI would have a positive or negative impact, and now Muse has clearly validated the correctness of its AI strategy and positioning," said Rob Biederman, co-founder and managing partner of Asymmetric Capital Partners, adding: "AI agents will become the entry point to the internet for many people, which is logical and gives Meta an edge in the competition." This month's rally marks a dramatic reversal for Meta's stock. For most of this year, Meta's shares languished amid market skepticism over its massive AI investments and legal risks from lawsuits targeting its social media business. Less than six weeks ago, after Meta issued disappointing revenue guidance in late July, the stock was down 18% year-to-date, and as of August 18, it ranked among the 50 worst performers in the S&P 500. Since then, however, Meta has become the third-best performer in the benchmark index, gaining 43%. The rebound began late last month when Meta agreed to pay up to $18 billion to settle a social media lawsuit, removing a major overhang. But the biggest driver has been optimism about new AI products and their potential to boost revenue, convincing investors like Biederman that Meta's stock still has room to run. One sign of investors' enthusiastic response to Muse is that they have been selling stocks across multiple industries on fears those companies could be disrupted, similar to the selloff triggered earlier this year by AI startup Anthropic. Meta has announced a grocery sales partnership with Instacart parent Maplebear, as well as a partnership with online travel company Expedia. At an event on Wednesday, Meta unveiled several products that analysts praised, including a handheld device that works with Muse and a camera-free version of its smart glasses lineup. JPMorgan analyst Doug Anmuth wrote in a September 10 report: "Meta is still in the early stages of releasing frontier models and AI-driven products beyond advertising, and there remains significant upside potential." He upgraded the stock from "Neutral" to "Overweight." AI Bet Squeezes Cash Flow, Valuation Divergence Remains Of course, Meta still has a long way to go in proving that its AI investments can generate sufficient returns to justify the massive spending. Capital expenditures this year are expected to approach $140 billion, double the roughly $70 billion in 2025. That figure is projected to rise to $197 billion next year and reach $215 billion by 2028. The massive spending is putting pressure on the company's financials. After generating $46 billion in free cash flow last year, Meta is expected to post negative free cash flow of $6.4 billion in 2026 and negative $29.2 billion next year. This puts growth pressure on the company. Analysts on average expect sales to grow 26% to $254 billion in 2026, with net income projected to rise 33% to $80.6 billion. But revenue and profit growth are expected to slow to 20% and 9% respectively next year. Data shows Meta trades at 21 times forward 12-month expected earnings. While that is a significant increase from below 14 times at its June low, it is roughly in line with its average valuation multiple over the past three years and at a slight discount to the Nasdaq 100's 22 times. "Currently, Meta's valuation multiple is below the market average, yet its growth rate is above the market average, which in itself is attractive, and it also has enormous scale and distribution channels that competitors would find very difficult to surpass," Biederman said. Wall Street remains broadly bullish on Meta, with more than 90% of analysts tracked by institutions giving it a "Buy" rating, but its stock price is approaching the average analyst target price, suggesting limited upside over the next 12 months. Brandon Pizzurro, chief investment officer at GuideStone Funds, who helps manage $29 billion in assets, said that given the magnitude of the rally, Meta's stock is vulnerable to a pullback, as views on the AI services market can change quickly. "As new AI models continue to be released, the market's perception of large tech companies seems to shift just as frequently. Products like Muse generate a brief catalyst-style excitement for the market, but the bar to impress investors is getting higher and higher, and there is legitimate reason to worry about whether these companies can deliver on their promises," Pizzurro said.