What's Going on With Meta Stock?
Key Points
While certain AI peers have significantly gained after a slump earlier this year, Meta stock hasn’t.
Meta’s earnings report even triggered a fresh decline in the shares.
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Meta Platforms (NASDAQ: META), as owner of some of the world's most popular apps, from Facebook to Instagram, has built a social media empire. And though advertising across these platforms drives its billion-dollar growth, the company in recent years has turned its attention to another potential growth engine. I'm talking about artificial intelligence (AI).
Meta has gone all in on this technology that many consider a game changer. The company has built its own large language models, hired AI talent, and even launched a superintelligence lab. All of this has required enormous investment, and this continues as we're still in the early stages of this AI boom.
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But while certain AI peers -- such as Amazon, Alphabet, Nvidia, and Broadcom -- have rebounded significantly from a tech slump earlier this year, Meta hasn't. In fact, the company's earnings report on April 29 triggered a fresh drop in the shares. What's going on with Meta stock? Let's find out.
Image source: Getty Images.
Meta's biggest source of revenue
So first, a quick look at the Meta story so far. As mentioned, the company generates most of its revenue thanks to advertising on its apps. Advertisers know that they can reach their target audience -- all of us -- across these popular platforms. Today, more than 3.5 billion people use at least one of Meta's apps daily.
All of this has helped the company generate billions of dollars in earnings -- so much that it can pay investors a dividend and pour investment into growth areas, such as AI. Meta's AI strategy involves investing in the tools -- like chips and models -- to get the job done.
The company aims to apply AI to its social media apps to make them even better and use AI to both improve advertising results and streamline the experience for advertisers -- the goal of all of this is to boost advertising revenue. Meta is also working to build AI agents that can help individuals and businesses accomplish their goals, and the depth of the company's research may even generate other products and services over time.
The Muse Spark release
Along the path to reaching these goals, Meta recently reached a big milestone: The company released its Muse Spark model, the first from its superintelligence lab. Spark, which powers Meta AI, has already delivered positive results: Meta has noted increases in Meta AI use since the model's release.
All of this requires enormous levels of spending, and Meta hasn't held back. The company, during its earnings report this week, said it aims for $125 billion to $145 billion in capital spending this year, up from an earlier estimate of $120 billion to $135 billion.
Meta is investing heavily in AI, but at the same time, the company continues to deliver significant growth in revenue and profit -- in the latest quarter, they climbed in the double-digits to $56 billion and $26 billion, respectively.
Meanwhile, as mentioned, Meta's stock has remained in the doldrums -- even as it trades at the bargain level of 20x forward earnings estimates.
Why is Meta stock falling?
So, what's going on with Meta stock? Following the earnings report, investors may have been disappointed by the small decline in daily users caused by "internet disruptions" in Iran, but I don't think this one element is driving investors away from Meta. Instead, I think that some investors might be favoring companies that are more quickly monetizing their AI investments, such as cloud service providers and chip designers. Though these companies are also spending heavily, they are able to immediately generate revenue from AI.
META data by YCharts
For Meta, the road might be longer, and that may be weighing on appetite for the stock.
What does this mean for tech investors? If you're looking for AI winners, keep in mind that they won't all bloom at exactly the same moment. Meta has set out a plan that will take time to accomplish, but if the company succeeds, it could result in explosive growth. So, for growth investors, it's a great idea to buy the stock now on the dip -- and hold on as this exciting story unfolds.
Should you buy stock in Meta Platforms right now?
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
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