TLDR
- Meta shares tumbled 25% after disclosing AI infrastructure spending will exceed $100 billion in 2026
- Q3 revenue of $51.2 billion crushed expectations, growing 26% from prior year
- AI-powered recommendations increased user engagement, with Facebook up 5% and Threads up 10%
- Current valuation of 20 times earnings represents the lowest level in almost ten years
- ARK Invest added $21.4 million in Meta shares, betting on long-term AI returns
Meta stock is getting crushed. The social media giant has lost a quarter of its value from the peak. Investors are spooked by the company’s spending plans.
Meta revealed it will pump over $100 billion into AI infrastructure next year. That’s a staggering increase from the $39.2 billion spent in 2024. The money is going toward data centers and computing power.
Wall Street is questioning whether this investment makes sense. The concern is simple: will Meta see returns that justify this level of spending?
Strong Fundamentals Hidden by Fear
The third quarter results got buried under spending worries. Meta posted $51.2 billion in revenue. That beat the top end of guidance by $700 million.
Year-over-year growth hit 26%. The gains came from AI-enhanced advertising technology. Better algorithms mean higher conversion rates for advertisers.
CEO Mark Zuckerberg shared specific engagement metrics. Facebook users are spending 5% more time on the platform. Threads engagement jumped 10%. Both increases stem from improved AI recommendations.
More time on platform translates directly to advertising revenue. Meta’s core business model is working better than ever.
Echoes of 2022
This isn’t Meta’s first controversial spending spree. Three years ago, the company burned cash on metaverse development. Investors bailed. The stock collapsed.
Meta eventually changed course. Spending got cut. Profitability returned. The stock bounced back stronger.
The difference this time? AI is already producing results. The metaverse remained mostly theoretical. AI improvements are showing up in quarterly earnings today.
Institutional Investors See Value
Cathie Wood’s ARK Invest bought 33,837 Meta shares during the decline. The purchase was worth $21.4 million. ARK has consistently defended AI investments against bubble accusations.
Wood argues enterprise AI adoption will take time. But she believes companies building infrastructure now will win long-term. Her fund is backing that view with real money.
The purchase suggests sophisticated investors view this as a buying opportunity. They’re looking past near-term spending concerns.
Price Action Creates Opening
Meta trades at roughly 20 times earnings. That’s the cheapest valuation since 2016, excluding the 2022 crash. A temporary tax charge in Q3 made the ratio look worse than reality.
Stripping out that one-time item, the multiple becomes even more compelling. The stock rarely trades this cheap. The last time it did, it delivered strong returns over the following years.
Revenue is growing. Margins remain healthy. The advertising business is accelerating. And the stock is down significantly from recent highs.
The Waiting Game
Capital spending will peak eventually. When Meta reduces investment levels, free cash flow should explode. The question is timing. How long until spending stabilizes?
That uncertainty is creating the current discount. Patient investors willing to look 12-24 months ahead might find opportunity. The business fundamentals support a higher valuation.
Meta finished Tuesday’s session at $633.61, down $2.61. The stock has fallen steadily since announcing the spending increase.
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