Meta is a top buy; fair value $810 implies >8% upside in 12-18 months due to AI payoff and attractive valuation.

The share price of Meta Platforms has risen enormously, and of course I am very happy about that. I own shares in Meta within my investment portfolio, and I have ranked it as one of the best stocks to buy this year.

In fact, it was ranked as the best stock to buy this year, but I changed its ranking to the second best stock to buy this year. So I am pleased to see the stock price soar from $540 per share to $750 per share in about one month . Meta's stock rose 13% today,

and there was other positive news as an analyst raised the target price for the stock to be closer to my estimate of the stock's fair value. Let's reassess Meta to see if it's still a great buying opportunity or if it's too late given the recent surge in the stock price.

Meta's stock spent most of the year in the red zone, and it was frustrating almost all year round . Therefore, it is more encouraging to see the recent improvement in the stock price.

I have been rating this stock as the best investment opportunity since January.

I saw an opportunity in that , and continued to emphasize a buy rating despite the stock's consistently disappointing performance. As you can see, the stock remained in the red zone for most of the year.

Only recently has the stock price performance improved significantly from $540 to $747 in today's trading.

Of course, today was a big day for Meta. The stock rose more than 12% after a Wells Fargo analyst raised the company's price target, citing the AI proxy app MetaMuse's top spot on Apple's App Store.

In a note to investors, analyst Kenny raised the company's target price from $640 to $796. The analyst said that Meta's recent successful AI prototype launches, including its new Spark offering and smart assistant, are proof that the company now has a story to tell regarding its AI capabilities.

In other words, all the hundreds of billions of dollars that Meta has spent on artificial intelligence are now starting to pay off , and it is still in its early stages. Therefore, the analyst raised his target price to $796, which is very close to my estimate for MetaPlatforms, which I updated today at $810 as a fair value.

Compared to the market price of $749 at the time this video was recorded , I still see a potential for an increase of over 8% in Meta's stock over the next 12 to 18 months.

Added to that is the value of the equity risk premium that Meta is likely to achieve next year, i.e., the weighted average cost of capital or cost of equity, which is approximately 12% above the rate of return of 8%.

Therefore, the risk-reward ratio of Meta stock at its current valuation still looks attractive to me.

When we look at the valuation using the forward price-to-earnings ratio, which is another way to value a stock. At the time of recording this video, the stock is trading at a forward price-to-earnings ratio of 21.4, which is a relatively cheap figure considering that Meta is growing its revenues by more than 20%, approaching 30%.

Its operating profit margins are approaching 50%, and the business is improving in terms of competitive advantage. As mentioned, Meta has spent hundreds of billions of dollars to enhance its artificial intelligence capabilities, including recommendation systems and ad targeting.

It improves the return on advertising spending. It also improves the user experience. Meta can invest in these categories on a much wider scale than its smaller competitors, including Pinterest, Reddit, Snap, and X.

Therefore, it enhances its competitive advantage, and it was already the best social media platform in the world wherever it was available. But the gap between it and its competitors is widening because Meta is able to invest in improving its core efficiency, capabilities and competitive advantages on a scale that its competitors cannot match in any way.

Therefore, the only reason for Meta's decline and trading at such a cheap valuation was the fear that those AI investments were wasted, and the fear that its negative free cash flows would continue for many years , which I don't believe is true.

In fact, I estimate that Meta's cash flow will be negative this year by $6 billion, and will get much worse next year to reach negative $24 billion, but it will turn positive in 2028 by $3.16 billion, and then start to reap significant rewards in 2029 to reach $50 billion.

If you think achieving $50 billion in free cash flow for Meta is unrealistic. This is the level the company was recording before it began its massive investments in artificial intelligence.

In 2024, the company recorded $49.5 billion in free cash flow.

Therefore, my estimate of free cash flow in 2029 at $50 billion is simply a return to that previous level. Then building from that point, to reach 68 billion in 2030, with continued growth thereafter .

In the short term, I see a significant negative impact on Meta's investments in its data centers and improving its artificial intelligence capabilities. These are the biggest impacts I expect in 2026, 2027 and 2028.

Yes, three years of a major negative impact on their cash flows, then a return to historical levels where they achieved huge free cash flows annually because they are a very profitable business.

The user-generated content business model is very profitable. It is the people who use the apps who create the interaction. Meta does not pay them for it , but profits from their interaction.

The more people there are on the platform, the more it encourages others to spend more time there because it is where friends and family are.

If you want to connect, see the latest status updates, comment on photos, or even on a party you attended over the weekend with your friends, you will turn to one of the Meta platforms, either Facebook or Instagram.

And Meta profits from all that interaction. A highly profitable business model, with very high profit margins, and with significant expansion and the use of network effects, it is difficult for any competitor to penetrate it, especially in light of artificial intelligence investments.

So , yes, I will reaffirm my ranking of Meta as one of the top 10 stocks to buy right now. In fact, I can say that it is one of the top five stocks. I have ranked it as the second best stock to buy right now, and I reaffirmed this ranking today, September 21, even after the stock price rose by a percentage point in one day.