Bank of America Says Meta Could Beat Revenue Forecasts as AI Boosts Ads, Despite $10 Billion Legal Charge

NEW YORK — Meta Platforms could report stronger-than-expected third-quarter revenue as artificial intelligence improves the performance of its advertising business, Bank of America said Friday, even as a one-time $10 billion legal charge is expected to weigh heavily on reported earnings.

In a note to clients, Bank of America Securities analyst Justin Post reiterated a Buy rating on Meta with an unchanged price target of $810, implying about 10% upside from the stock's reference price of $736.72.

Meta shares were down more than 2% in Friday trading at around $720, extending a pullback this week amid a broader sell-off in AI-related stocks.

Revenue expected to top estimates

Post expects Meta to report third-quarter revenue of $63.8 billion, above Wall Street's consensus estimate of $63.3 billion.

He projects advertising revenue of $62.2 billion, representing 24% growth from a year earlier.

Bank of America's checks with advertisers suggest AI-powered targeting and automation tools are helping businesses generate stronger returns on their ad spending, which could support continued revenue growth, according to the note.

The bank also expects fourth-quarter revenue of $74.1 billion and earnings of $8.74 per share, both above consensus estimates.

Legal charge to hit earnings

Despite the upbeat revenue outlook, Bank of America sharply lowered its third-quarter earnings estimate to $3.79 per share from $7.08, well below the Wall Street consensus of $6.08.

The reduction reflects a one-time legal accrual of about $10 billion tied to Meta's settlement with state attorneys general over claims that its platforms harmed young users.

Excluding the charge, Post expects Meta's underlying earnings and operating income to exceed expectations.

The settlement

Meta reached the settlement in August with a bipartisan coalition of state attorneys general, resolving claims that the company designed Instagram and Facebook with addictive features, knowingly exposed young users to mental health harms and misled the public about the safety of its platforms.

Meta said the agreement includes payments of about $18 billion distributed over 10 years, though part of that total is conditional on future settlements involving other social media companies. Meta also agreed to implement broad child-safety reforms on its apps.

The company said at the time it expected to record a legal expense of about $10 billion in the third quarter related to the agreement, a cost not previously included in its financial planning.

California Attorney General Rob Bonta, one of the leaders of the case, said the deal would "make social media less dangerous for our kids."

Meta's shares rose about 4% on the day the settlement was announced, as investors welcomed the removal of a major legal uncertainty.

JPMorgan has also added a $10 billion legal accrual to its third-quarter model for Meta, cutting its 2026 earnings estimate by about 10%.

Spending to climb

Bank of America also raised its forecast for Meta's 2027 capital expenditures to $205 billion from $192 billion, above Wall Street's estimate of $195 billion. The increase reflects growing infrastructure needs for Meta's Muse AI products and enterprise offerings.

The bank expects Meta to narrow its 2026 capital spending guidance to between $140 billion and $145 billion. It also anticipates that the lower end of Meta's 2026 expense outlook could rise by $10 billion to $175 billion because of the settlement charge.

The scale of Meta's AI spending has become a major focus for investors. Earlier this week, Guggenheim analyst Michael Morris raised his 2027 capital spending estimate for Meta to $225 billion, while Goldman Sachs lowered its price target, citing concerns about rising expenses, though it kept a Buy rating.

What to watch

Bank of America said investors should focus on adoption of Meta's Muse AI technology, enterprise demand and the company's large language model strategy when the company reports results.

The bank remains positive on Meta's long-term prospects, viewing its AI investments as a potential driver of advertising growth and future valuation gains.

Market backdrop

Meta's shares have come under pressure this week alongside other technology stocks, as hotter-than-expected U.S. inflation data raised the possibility of further interest rate increases and concerns grew about debt-fueled spending on AI infrastructure.

The stock remains well above its 52-week low but below its recent high of about $780.

Meta is scheduled to report third-quarter results on Oct. 21. Investors will focus on advertising growth, the impact of the legal charge, guidance for 2026 and 2027 spending and evidence that the company's heavy AI investments are generating returns.