Meta (META.US) surged 36% in September: Muse validates AI strategy, market cap targets $2 trillion

According to news from Zhitong Finance APP, Meta Platforms (META.US) stock has finally made a breakthrough. The Facebook parent company's share price surged 36% in September after the company launched the personal AI assistant Muse. This assistant quickly climbed to the top of the US app charts and alleviated market concerns that massive AI investments would not deliver returns. Meta's stock is poised for its best single-month performance since July 2013, and is just about 1% away from joining the $2 trillion market cap club.

Muse as a Catalyst, Dramatic Reversal in Stock Price

"Over the past year and a half, Meta’s stock price basically stagnated as people were unsure whether AI would have a positive or negative impact. Now, Muse has definitively validated the logic and positioning of Meta’s AI strategy,” said Rob Biederman, co-founder and managing partner at Asymmetric Capital Partners. He added, “AI agents will become the gateway for many people to access the internet; this makes sense and gives Meta an edge in the competition.”

The rally this month marks a dramatic reversal for Meta’s stock. For most of the year, Meta shares underperformed due to skepticism over its massive AI investments and legal risks stemming from lawsuits targeting its social media business. Less than six weeks ago, after issuing a disappointing revenue forecast at the end of July, Meta's year-to-date share price fell by as much as 18%. As of August 18, the stock was among the 50 worst performers in the S&P 500.

However, since then, Meta has become the third-best performing stock in the benchmark index, with a 43% gain. The rebound began late last month when Meta agreed to pay up to $18 billion to settle a social media lawsuit, eliminating a major overhang. Yet, the biggest driver has been optimism regarding the potential revenue uplift from its new AI products, prompting investors like Biederman to believe Meta shares still have upside.

One sign of investors’ strong reception of Muse is that they have been selling off shares of companies in multiple sectors, fearing those firms may be disrupted—reminiscent of the selloff earlier this year triggered by AI startup Anthropic.

Meta has announced a partnership for grocery sales with Instacart’s parent Maplebear, and also a collaboration with online travel company Expedia. During an event on Wednesday, Meta unveiled several analyst-praised products, including a handheld device for use with Muse and a camera-free version of its smart glasses series.

J.P. Morgan analyst Doug Anmuth wrote in a report on September 10, “Meta is still in the early stages of launching frontier models and AI-driven products beyond advertising, so there remains significant upside potential.” He upgraded the rating from “neutral” to “overweight.”

Big AI Bets Squeeze Cash Flow, Valuation Disagreements Remain

Of course, Meta still has a long way to go in proving that its AI investments can generate sufficient returns to justify the massive expenditures. This year’s capital expenditures are expected to approach $140 billion, double the roughly $70 billion expected in 2025. That figure is projected to rise to $197 billion next year and $215 billion by 2028.

The massive spending is putting financial pressure on the company. After generating $46 billion in free cash flow last year, Meta is expected to have negative free cash flow of $6.4 billion in 2026, and negative $29.2 billion next year.

This puts growth pressure on the company. On average, analysts expect sales in 2026 to grow 26% to $254 billion, with net profit expected to grow 33% to $80.6 billion. However, revenue and profit growth are expected to slow to 20% and 9%, respectively, next year.

Data shows Meta’s forward 12-month P/E ratio is 21 times. Although this is up significantly from the less than 14 times at June’s lows, it roughly matches the average valuation over the past three years and is slightly below the Nasdaq 100’s 22 times.

“Currently, Meta’s valuation multiple is below the market average, but its growth rate is higher than the market average, which in itself is very attractive. Furthermore, it has enormous scale and distribution channels—advantages that are hard for competitors to surpass,” said Biederman.

Wall Street still generally favors Meta, with more than 90% of analysts tracked by institutions giving the stock a “buy” rating, but the stock price is approaching the average analyst target, suggesting limited upside in the next 12 months.

GuideStone Funds CIO Brandon Pizzurro commented that given the magnitude of this rally, Meta shares are prone to a pullback, as market views on the AI services sector can shift quickly. He helps manage $29 billion in assets.

“As new AI models keep rolling out, the market's perception of Big Tech seems to change just as frequently. Products like Muse can provide a new catalyst causing short-lived excitement, but nowadays the bar to impress investors is higher, and there is reason to worry whether these companies can deliver on their promises,” Pizzurro said.