Pershing Square: Meta Platforms ($META) Investment Case
In their 2026 Annual Investor Presentation, Pershing Square Holdings introduces their investment in Meta Platforms Inc. ($META), presenting it as a compelling opportunity in the digital advertising space. Pershing Square, known for identifying high-quality businesses trading at discounted valuations, positions Meta as a clear beneficiary of AI integration despite market concerns around spending. The letter emphasizes the importance of recognizing Meta’s dominant market position and structural growth drivers, even when near-term investment cycles create valuation opportunities. Pershing Square’s decision to invest in Meta comes after identifying a disconnect between the company’s long-term AI upside potential and current market pricing, reflecting their commitment to finding compelling risk-reward opportunities.
Investment Highlight: Meta Platforms Inc. ($META)
Business Overview
- Dominant leader in the secularly fast-growing digital advertising space
- Operates two primary segments: Core Family of Apps and Reality Labs
- Entrenched global user base exceeding 3.5 billion daily active users
- Daily active user base continued growing at 7% rate in Q4 2025
Market Position
- $200 billion in 2025 revenue, reflecting 22% annual growth rate
- Family of Apps includes Instagram, Facebook, and WhatsApp with advertising-based model
- Reality Labs focuses on wearables and metaverse/augmented reality initiatives
- Currently loss-making Reality Labs represents ~25% of Meta’s overall profit
Performance Analysis
- Unique Business Model:
- High-quality advertising business with increasing returns to scale
- Scaling engagement improves utility for both users and advertisers
- Granular visibility into consumer behavior enables highly precise ad targeting
- Essential platform for businesses seeking to maximize return on ad spend
- AI Integration Benefits:
- AI-driven content recommendation systems materially enhance user engagement
- Content broadened from social graph to wider interest-based content
- AI leverages rich first-party data for more relevant, personalized ads
- Campaign automation and AI copy creation tools facilitate self-serve model
- Potential to unlock new use cases (Business AI assistants, wearables)
Growth Runway
- Medium-term outlook positions for continued ~20% earnings growth
- Significant upside potential from AI supports infrastructure investments
- Historical cost discipline (2023 “Year of Efficiency”) demonstrates operational focus
- Recent budget cuts in Reality Labs segment highlight balancing of investments
- Overbuilding risk mitigated by core business’s ability to absorb excess capacity
Market Dynamics and Opportunities
- One of the clearest beneficiaries of AI integration across industry
- Strong balance sheet provides significant financial flexibility
- High-margin core business enables front-loading of AI infrastructure investments
- Well-positioned for long-term earnings growth after 2026 spending ramp
Valuation and Capital Allocation
- Currently trading at 22x NTM P/E due to concerns around AI spending magnitude
- Excluding Reality Labs losses (discretionary investments), core advertising business valued at less than 18x NTM P/E
- Concerns around spending initiatives underestimate long-term AI upside
- Acquired opportunistically in November 2025 at 21.1x NTM earnings
Risks
- Magnitude and duration of AI-related capital expenditure program
- Execution risk on Reality Labs initiatives
- Regulatory pressures across multiple jurisdictions
- Competition in digital advertising and social media space
- User engagement and platform relevance concerns
Other Key Points
- Experienced leadership team led by founder and CEO Mark Zuckerberg
- Strong Q4 2025 results with better-than-expected 2026E revenue growth guidance
- Reality Labs represents discretionary growth investments
- Share price increased 11% in 2025 and 3% year-to-date in 2026
Pershing Square views Meta as a deeply discounted valuation for one of the world’s greatest businesses, citing the market’s underappreciation of the company’s long-term upside potential from AI as a key investment thesis. They believe Meta’s current share price fails to reflect the significant value creation opportunities ahead as AI transforms both user engagement and advertising effectiveness.
