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With a market cap above $1.5trn, Meta Platforms (NASDAQ:META) remains one of the S&P 500‘s big beasts, even after a 17% decline in its stock price.
Amazingly, this steep drop has come in just the past eight trading days following the firm’s Q3 results. Looking back though, with Meta stock up nearly 500% in the last decade, all previous pullbacks have proven to be timely buying opportunities.
And I think this one might turn out to be no different. Here’s why.
Frontloading capacity
Firstly though, why has Meta fallen sharply? It relates to fears about AI spending, basically.
The social media giant has said that its capital expenditure in 2026 will be “notably larger” than 2025. And it has committed to spending over $600bn in the US by 2028 to support its AI infrastructure, data centres and workforce expansion.
This is obviously an eye-popping amount (it made me wince just typing it). But unlike Amazon (AWS), Microsoft (Azure), or Google (Cloud), which are building AI infrastructure to sell to others, Meta is mostly building for itself.
As CEO Mark Zuckerberg puts it, Meta will “aggressively frontload building capacity”. In other words, it’s investing heavily for anticipated future demand.
If this doesn’t bear fruit, it obviously adds risk. Amazon did something similar during the pandemic, overinvesting in warehouse space.
Investors are probably getting an unpleasant feeling of déjà vu. Back in 2021/2022, the company went all-in on the metaverse, even going so far as to change its name from Facebook to Meta Platforms.
However, the metaverse has so far been a failed bet, with the Reality Labs division posting a cumulative loss of over $70bn since late 2020.
Between September 2021 and November 2022, Meta’s share price crashed 76%!
Two AI camps
As I see it, Meta’s AI spending can be split into two camps. The first is using the technology to improve monetisation across its existing apps (Facebook, Messenger, Instagram, Threads, and WhatsApp). This is already boosting engagement and targeted ad performance.
The second involves developing the next generation of AI to potentially power future computing products and platforms, including smart glasses, a fully realised metaverse, and ultimately Artificial General Intelligence (AGI). These ambitious projects are costing a bomb.
Solid core
If we deliver even a fraction of the opportunity ahead for our existing apps and the new experiences that are possible, then I think that the next few years will be the most exciting period in our history.
Mark Zuckerberg.
Despite the uncertainty, Meta’s core business remains rock-solid. In Q3, revenue jumped 26% year on year (nearly all revenue comes from digital ads). An astonishing 3.54bn people use at least one of its apps every day.
Monetisation of users (people and businesses) in vast markets like India has barely started. According to a new GSMA report, India’s digital economy is expected to exceed $1trn by 2030, up from $370bn in 2023. WhatsApp, Facebook, and Instagram each boast hundreds of millions of Indian users.
I’m also bullish on future growth opportunities like Ray-Ban Meta Glasses and the monetisation of WhatsApp, which is evolving into a customer service and e-commerce layer across emerging markets.
With Meta stock trading at just 21 times forward earnings, I think this is a dip-buying opportunity worth thinking about.
