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Wells Fargo Sets New Target on Meta Amid 55% Cost Surge - 3 Conditions Investors Should Watch Before Acting

Q2 expenses hit $42.03 billion as the analyst sees 2027 earnings troughing

By Damilola Esebame, CFEI® , Edited by Laura Hohenstein

Updated Oct. 10, 2026

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Wells Fargo analyst Ken Gawrelski raised Meta Platforms' (META) price target to $1,000, the highest call on Wall Street, but the gap between that target and the quarterly numbers behind it matters for your financial fitness as a Meta shareholder.

Q2 2026 total costs surged 55% to $42.03 billion, while diluted earnings per share (EPS) of $6.18 missed the $7.22 analyst estimate. The consensus price target sits at $794.96, roughly $200 below Gawrelski's call.

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Gawrelski raised the price target to $1,000 from $796, the second increase in two weeks

Gawrelski lifted the target to $1,000 from $796, the second increase in roughly two weeks after a prior raise from $640 in late September, and the catalyst for both was Muse, Meta's artificial intelligence (AI) agent released on September 8, BeInCrypto showed.

The broader analyst community remains bullish, with 87% of coverage ratings at Buy or Strong Buy and a consensus 12-month target of $794.96, 24/7 Wall St. noted. The gap highlights the conviction required to bridge a 35% upside thesis.

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Q2 total costs surged 55% to $42.03 billion while revenue grew 28%

Meta's Q2 2026 total costs and expenses reached $42.03 billion, a 55% increase year over year, while total revenue of $60.80 billion grew 28% and beat the $60.24 billion estimate, SiliconANGLE reported. Advertising revenue of $59.36 billion, up 27%, drove the top line, with ad impressions growing 14% and price per ad rising 12%.

Chief Financial Officer Susan Li attributed much of the expense growth to technical hires in AI and to higher infrastructure and cloud costs that support Meta's push to scale its products. Meta founder Mark Zuckerberg stated in the earnings release that AI is "accelerating our core business" and "powering our next generation of products," SiliconANGLE documented. The spending reflects a bet that AI infrastructure will justify the margin compression you absorbed as a shareholder.

Operating margin compressed to 31% from 43% as research spending jumped 67%

Operating margin fell to 31% from 43% a year earlier as research and development (R&D) spending reached $21.66 billion, a 67% increase that made it the largest single cost category in the quarter, SiliconANGLE showed.

General and administrative expenses more than doubled to $5.61 billion, driven by $2.40 billion in legal-proceeding charges and $1.18 billion in severance costs from the May headcount reduction of roughly 8,000 jobs.

Free cash flow fell to $784 million from $8.55 billion a year earlier

Free cash flow dropped to $784 million from $8.55 billion in the year-earlier quarter, a decline that reflects the scale of capital deployment Meta directed toward AI infrastructure, SiliconANGLE reported.

Capital expenditures, including finance-lease payments, reached $31.08 billion against an operating cash flow of $31.86 billion, leaving virtually no cash after investment.
Share buybacks fell to zero from $10.17 billion a year earlier, and long-term debt rose to $83.66 billion from $58.74 billion at the end of 2025 as Meta funded the buildout with borrowed capital.
Meta's Advantage Plus advertising platform surpassed a $75 billion annual run rate, and gross margin held at 82% despite the cost surge.

Gawrelski expects 2027 to mark the earnings trough before an AI-driven recovery

Gawrelski expects 2027 to mark the trough for Meta's EPS as the company absorbs the cost of its AI product buildout, and he drew a direct comparison to the launch of Reels in 2022 when Meta accepted heavy spending before advertising momentum returned, BeInCrypto reported.

The analyst expects earnings estimates to rise steadily after the trough as the market prices in revenue from AI products, and Meta's upcoming earnings commentary will likely set muted near-term expectations for Muse monetization.

Muse lifted the stock nearly 20% since its September 8 launch

Meta released Muse, its consumer-facing AI agent, on September 8, and the stock gained nearly 20% in the following month while the S&P 500 rose just 1.5%, BeInCrypto showed. JPMorgan raised its target to $920, arguing Muse could become the most widely used consumer AI application since ChatGPT.

More than one million businesses were using Meta's business agents weekly on WhatsApp and Messenger, adding an enterprise AI dimension to the consumer-facing Muse momentum and broadening the revenue case for your investment, 24/7 Wall St. documented.

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The Q3 earnings call will test capex guidance, Muse traction, and the 2027 outlook

Meta guided Q3 revenue to $61 billion to $64 billion, narrowed full-year 2026 capital expenditures to $130 billion to $145 billion from the prior $125 billion to $145 billion range, and lifted the low end of the expense outlook to $165 billion, SiliconANGLE noted.

Gawrelski expects Meta's upcoming earnings commentary to set muted expectations for near-term Muse monetization while projecting fiscal year 2027 as a trough before AI product revenue lifts estimates, BeInCrypto reported. Investors watching the Q3 call may want to track Muse engagement data, the monetization timeline, and the 2027 earnings trajectory before acting on the $1,000 thesis.

Bottom line

The $1,000 target implies a forward price-to-earnings (P/E) multiple of roughly 32 times, above the consensus forward multiple of about 23 times, and 24/7 Wall St.'s bull-case model projects Meta reaching that level by September 2027. The 2027 earnings trough Gawrelski projects draws a direct parallel to the Reels cycle of 2022, when Meta absorbed heavy spending before revenue gains materialized.

Capex revisions, Muse engagement data, and the 2027 EPS outlook at the Q3 call will shape whether you start investing behind the $1,000 thesis or wait for the numbers to narrow the gap between $794.96 and $1,000.

This article is for informational purposes only and should not be considered investment advice.

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