Meta earnings preview: capex is failing to deter options pricing

Meta Platforms META shares are inching lower heading into the company’s fiscal Q2 results set to be posted after the market close on Wednesday, July 29^th.

Consensus is for the tech behemoth to record $60.2 billion in revenue on $7.18 a share of earnings, which would represent roughly no change in bottom-line on a year-over-year basis.  

Still, the derivatives market seems to believe Meta stock will recover some of its recent loss after the quarterly print tomorrow.

Options pricing and technicals warrant buying Meta stock

As of writing, the put-to-call ratio on options contracts expiring July 31^st sits at 0.66, indicating a bullish skew, with the upper price set at nearly $636 signaling potential for a 7% rally through the end of this week.

Interestingly, between the current and options-implied price are META’s major moving averages – which means a positive reaction to the Q2 release could receive an additional boost from technical momentum.

Note that META shares have a history of closing July with a nearly 5% gain on average, a seasonal pattern that reinforces the bull case for the near-term.

Capex guidance to determine META shares' trajectory

Investors should note, however, that it will ultimately be Meta Platforms’ updated capex guidance that will determine the near-term trajectory for its stock price.

Management has already raised its full-year outlook for capital expenditures, currently set at $125 billion at least, and Wall Street will be watching closely for any further upward revisions.

Crucially, the multinational isn’t suffering from a lack of monetization – AI-driven targeting tools continue to deliver tangible returns by boosting ad pricing power and user engagement.

However, the broader market narrative has turned relentlessly hostile toward growing infrastructure budgets.

In a tape where investors have repeatedly penalized tech mega-caps for swelling AI outlays, Meta must prove that its aggressive infrastructure investments are expanding margins rather than simply eroding free cash flow.

Any weakness on that front would likely trigger a near-term sell-off in Meta shares.

How Wall Street recommends playing Meta Platforms

From a valuation perspective, META stock is one of the more attractive artificial intelligence (AI) beneficiaries, with a forward price-to-earnings (P/E) multiple of about 20x.

That said, executives have predominantly sold shares this year, and while they may have legitimate reasons (diversification and personal financial planning) for selling, the optics of the activity sure are less than ideal for investors.

On the flip side, however, Wall Street hasn’t thrown in the towel on Meta Platforms heading into its Q2 earnings release.

According to The Wall Street Journal, the consensus rating on META remains at “Buy” – with the mean price target of $822 indicating potential for a more than 35% rally over the next 12 months.

A small 0.35% dividend yield makes the hyperscaler even more attractive to own at current levels.