Meta is a top-10 buy; fair value $763 implies ~17% upside despite negative FCF and regulatory risks.

We got some great news for Meta stock investors as the company announced a new AI product that sent the share price up by more than 6% on the day of the announcement.

I'll review what that new product was, how Wall Street is reacting, how I changed my estimates for the company's fair value, and my updated ranking for Meta as a buy, hold, or sell.

So, shares of Meta stock are up 6.3% on the day of this announcement after the company debuted Muse, an AI assistant. Wall Street is bullish on the standalone chatbot. They believe this consumer AI agent marks the beginning of a substantial product cycle for Meta that's not priced into shares.

Mizuho Securities analyst said in a note. The firm has an outperform rating and a $750 price target on Meta stock.

And that's similar to the price target that I have on Meta stock. Today, I updated my discounted cash flow valuation model for Meta Platforms, and I calculated a fair value of $763.

Not that far away from the analyst at Mizuho Securities. Meanwhile, KeyBanc Capital Markets analyst hold an overweight rating on the stock with a price target of $780. That's above where I'm estimating the fair value of the company.

They continue to believe the market underestimates Meta's AI positioning and product cycle. And both of these analysts are referring to the fact that Meta Platforms has yet to really launch new products, and those are in the pipeline as a result of its mega AI investments where it spent over $200 over the last 2 years.

Investors have seen all of the negative, the reporting that it's cash flow will turn negative this year and next and I agreed their cash flow will be negative. In fact, you can see that in my estimates for their fair value.

I calculated that in 2026 the business will generate negative $6 billion in free cash flow. In 2027 it'll get much worse at negative $21 billion in free cash flow.

So these have been widely publicized. Everyone's been talking about how much money they're spending and how negative their free cash flow will be.

But we haven't really seen any results from these investments. We've seen a little trickle here and there with improvements in their recommendation systems. Revenue growth is accelerating as a result of improvement in their systems.

Consumer engagement is increasing on the platform. The return on advertising spending is increasing on the platform. So their core competitive advantages have been improving demonstrably so.

But there haven't been very many or any really new products that have generated any excitement from investors. And so this marks really the first of a product release coming out of their AI investment that's generated any kind of investment excitement from Wall Street or retail investors alike.

So in a video message CEO Mark Zuckerberg touted the tools privacy and security capabilities. Saying we built a secure credential store for your passwords and credit cards so Mews can't read this information.

It also checks directly with you before taking sensitive actions like making payments or sending messages, Zuckerberg said.

Now Meta Platforms does not have a good reputation on safety and security. They famously utilize consumer data for their own benefit selling advertisers access to your information so that the company can profit.

Now, I own Meta Platforms stock and I've ranked Meta as one of the best stocks to buy, but I still feel obligated to share that information because with every investment that I consider, I'm thinking about the downside of that investment as well as the upside.

I'm thinking about a company's competitive advantages as well as their competitive disadvantages.

And security is one category, privacy and security combined, is one category where Meta Platforms trails significantly, right? And that was a challenge for Meta. If you remember, Meta's stock price fell significantly as a result of that privacy policy change from Apple.

Meta trying to reframe that, trying to reposition itself as a protector, as a champion of consumer privacy. They're not there yet. They're not anywhere near there yet. But hopefully, these steps will improve their reputation with consumers for protecting their privacy and security. That remains to be seen.

So, as I shared with you earlier, I updated my fair value estimate for Meta Platforms, revising the figures upwards to $761.

Current market price, even after today's increase, is $651 before the screen went uh blank there. I had calculated an upside here of around 17% for Meta Platforms stock.

Of course, I already mentioned one of the bearish factors in that its free cash flow is in free fall. Another bearish factor are the regulatory concerns. You may have seen the trial where Meta Platforms agreed to settle and pay upwards of $17 billion to settle the dispute with regulators and make some policy changes in response.

These are the bearish factors for Meta Platforms. I also talked about some of the bullish factors in that the company is experiencing an increase in engagement as a result of their investments in AI.

They've learned to make the platform more engaging to consumers, surfacing content that you're more interested in engaging with by identifying what the content is about using AI to identify the videos that are uploaded and then match them with your preferences so that you see more content that you're interested in seeing.

And of course, that builds on the company's core competitive advantage. It separates itself from other social media companies that have nowhere near the budget that Meta Platform has to invest in these technologies to improve their core competencies and social media companies like Pinterest, Snap, Reddit, and X are falling further behind because they can't make the kinds of investments that Meta is making.

So, today I reiterated my ranking for Meta Platforms as one of the top 10 stocks to buy right now. As I mentioned, I own Meta stock. I'm interested in adding more Meta stock to my portfolio at current market prices.

Remember, Meta said that they're going to spend roughly $10 billion more in capital expenditures this year, and one of the reasons they alluded to having to spend $10 billion more is because of higher memory prices.