Bank of America Research Report Analysis: Meta Revenue Beats Expectations, Muse Opens Path to AI Monetization

By Rita

Meta reported $64.6 billion in Q3 revenue, surpassing market expectations of $63.3 billion. Earnings per share (EPS) came in at $3.83, below the expected $5.52, weighed down by a $9.9 billion one-time legal settlement expense. Excluding this charge, both operating profit and EPS beat expectations. Bank of America Securities believes that AI investments are showing signs of returning returns, and Muse's commercialization path has become clearer than last quarter.

In a report issued on October 22, 2026, Bank of America Securities maintained a Buy rating on Meta, raising its price target from $810 to $845 based on a 25x multiple on 2027 EPS estimates. With the current stock price at $697.52, the target price represents a 21% upside. Q4 revenue guidance ranges from $73 billion to $76 billion, above market expectations of $73.6 billion. The high end corresponds to a 28% growth rate ex-foreign exchange impact, accelerating by 2 percentage points compared to Q3.

Revenue Beats Expectations with Acceleration in Q4

Advertising revenue was the primary driver of the revenue beat, with Q3 ad sales reaching $63.1 billion, exceeding market forecasts of $61.7 billion. Excluding foreign exchange impacts, advertising revenue grew 26% year over year, maintaining steady growth despite a comparison base that was 3 percentage points higher.

U.S. advertising revenue grew 33% year over year, accelerating by 2 percentage points sequentially, against a comparison base 2 percentage points higher. Bank of America Securities noted that advertising demand remains healthy, with strong e-commerce and retail ad spending. The median of the Q4 revenue guidance stands at $74.5 billion, above market expectations of $73.6 billion.

Growth excluding foreign exchange impacts is projected at 28% for Q4, accelerating by 2 percentage points versus Q3, against a comparison base 2 percentage points lower. Bank of America Securities attributes this acceleration primarily to AI-driven ad tools and improvements in recommendation systems. Meta's generative recommendation system delivered nearly a 2% conversion lift in targeted segments of the Facebook feed, while the Generative Advertising Model (GEM) generated a 1% to 1.7% off-site conversion lift and a 9.6% app ad conversion lift.

Muse Becomes Core of AI Monetization

Muse took center stage during the earnings call. Meta set a goal of reaching 1 billion users, a milestone that Bank of America Securities believes bolsters market confidence in AI opportunities. Within six weeks in the U.S. and Canada, Muse surpassed 10 million activations across devices, though it has not yet launched globally. Shopping remains Muse's largest use case, utilized by over 25% of users, with average purchase values exceeding $200.

Muse's monetization pathways include transaction fees, consumer and enterprise subscriptions, and ad personalization. Management expects per-user monetization to eventually exceed the hundreds of dollars in Family of Apps (FoA) revenue currently contributed annually by existing U.S. Muse users. Bank of America Securities notes that subscription and commerce commissions could provide a tailwind in the second half of 2027.

The enterprise AI opportunity is taking shape. Following the launch of the Muse Wonder large model, API licensing, Muse Code, and Muse Agents are advancing. Bank of America Securities anticipates that Meta will distribute model APIs through leading hyperscale providers, and that enterprise API licensing or Muse Code transactions could serve as stock price catalysts. The enterprise AI market is projected to exceed $1 trillion by 2028, allowing Meta to build differentiated products leveraging consumer insights and communication platforms.

Cost Guidance Raised but Contained

Meta raised its 2026 expense guidance from $165 billion to $169 billion up to $175 billion to $179 billion, with the increase primarily reflecting the one-time legal settlement costs. On an adjusted basis, the underlying expense guidance remains unchanged. Bank of America Securities expects 2026 expenses to land at the lower end of the guidance range, with significant sequential growth in Q4.

Expenses are expected to grow 30% to $215 billion in 2027, excluding the 2026 one-time legal charges. Bank of America Securities has raised its 2027 revenue forecast by 1.3% to $319 billion, while lowering its EPS estimate by $0.24 to $34.00 to account for costs associated with scaling Muse and building out enterprise AI solutions. Capital expenditures for 2027 are projected at $210 billion, an increase of $74 billion year over year, with free cash flow expected to be negative $33 billion.

Bank of America Securities pointed out that rising capex and negative free cash flow may continue to weigh on sentiment. While equity financing remains a possibility, Class C shares become effective on January 19, 2027, meaning no equity will be issued prior to 2027. Securing 1 gigawatt of external capacity exceeds $30 billion, and accelerated capacity deployment could drive up expenses and pressure EPS.

Valuation Remains Attractive

At the after-hours price of $713, Meta trades at 21 times Bank of America Securities' 2027 EPS estimate, or 18 times excluding Reality Labs. The S&P 500 trades at 18 times based on a 2027 EPS of $4.20. Historically, Meta has traded at a 2.4 percentage point premium to the S&P 500, placing its current valuation near historical averages.

Bank of America Securities argues that Meta's AI assets—including cutting-edge large models, Muse, enterprise solutions, and a projected 14 gigawatts of capacity by the end of 2027—are not fully priced into the current valuation. Increased visibility into AI monetization throughout 2027 should bolster market confidence in returns.

Risks include capital funding announcements, rising expenses and declining EPS in 2027, geopolitical and energy prices impacting ad spend, intensified competition from OpenAI and incumbents, reliance on ad revenue amplified by rising fixed costs pressuring profitability, margin compression in 2027, elevated capex and negative free cash flow, and additional legal reserves for youth safety litigation outside the U.S.

Bank of America Securities reiterates its Buy rating. Revenue beat, accelerating Q4 guidance, and Muse alongside enterprise AI unlocking monetization paths contrast with headwinds from rising expenses and capex dampening short-term EPS. Enhanced visibility into AI monetization is key to a valuation re-rating. Key follow-up indicators will include Muse user growth, enterprise API licensing, and the deployment of proprietary chips.

Disclaimer

This article compiles and interprets third-party brokerage research reports (Bank of America Securities, October 22, 2026) by TechFlow Research, combined with publicly available market information. The ratings, price targets, earnings forecasts, and related assessments cited herein reflect the views of the respective brokerage analysts, represent only the stance of their affiliated institutions, do not constitute the views of TechFlow Research, and do not constitute investment advice.

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