Meta Platforms’ stock (META) is “priced for perfection” following its latest earnings report, according to Laura Martin, senior analyst at Needham & Co.
While the tech giant posted strong results and issued impressive guidance, Martin warns that the company’s aggressive spending plans leave little room for error if revenue targets fall short.
Speaking in an interview with CNBC, Martin acknowledged the strength of Meta’s (META) guidance but cautioned investors about the stakes involved.
The company is projecting 30% FX neutral growth in the first quarter, a 600 basis point improvement from the prior period.
“Fantastic if they can do it,” Martin said. “The problem is the stock is priced for perfection. And if they don’t hit the 34% nominal or 30% FX neutral number, the stock gets clobbered because of all the spending they’re doing and cannot reverse during fiscal 26.’”
When asked what “priced for perfection” means in practical terms, Martin was direct about the downside risk. “There’s downside of 10%-15% if they don’t hit these revenue acceleration numbers they’re now projecting,” she explained.
The concern stems from what she described as “plummeting” returns on capital, with margins projected to fall from 40% in fiscal 2025 to between 30% and 32% in 2026.
Martin expressed concern about Meta’s (META) position ahead of a major capital expenditure cycle.
“Being in front of a CapEx cycle is a bad call,” she said. “We should be on the other side.”
For the stock to continue its upward trajectory, Martin emphasized that Meta’s (META) investments in artificial intelligence must deliver tangible results.
“We need the LLMs here to continue to improve their productivity and accelerate their revenue growth,” she said. “And if so, the stock will continue to move up. Otherwise, there’s real downside here, we think.”
Despite her cautious stance on Meta’s (META) valuation, Martin offered a positive outlook for the broader digital advertising sector. She pointed to a “positive read through for all the ad-driven stocks,” noting that the fourth quarter “over delivered by 200 basis points” in the ad vertical.
This bodes well for competitors including Google (GOOGL), (GOOG), Trade Desk (TTD), and Magnite (MGNI). Martin suggested the strong results may reflect not just Meta’s (META) specific innovations but also “a very strong ad market” overall.
Looking ahead, Martin expressed optimism about Meta’s (META) guidance for fiscal 2026 and the numbers expected for April, while maintaining her view that the stock’s current price leaves investors vulnerable to any shortfall. The stock is currently +9.9% and +11.6% from a month ago.
The high-stakes nature of Meta’s (META) position means the coming quarters will be critical in determining whether the company can justify its premium valuation.