Meta Platforms Stock Falls Despite Posting Strong Q3 Numbers. Should Investors Buy the Dip?

Last week, social media giant Meta Platforms (NASDAQ:META) reported its third-quarter earnings. It was yet another solid quarter of growth, as the business continues to find ways to get bigger and generate more revenue. It's also eyeing significant growth opportunities in artificial intelligence (AI) and launched its new personal AI agent, Muse, back in September.

Despite the seemingly exciting potential ahead and its robust numbers, the stock has been falling since its quarterly results came out. Could this be a great opportunity for investors to buy the tech stock?

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Meta's growth remains impressive, but investors may be concerned about high spending

For the three-month period ending Sept. 30, Meta's revenue totaled $64.6 billion, which was a year-over-year increase of 26%. On the bottom line, things were a bit messy due to the legal settlement it reached involving litigation related to social media and mental health issues. The company reported a $9.9 billion charge this past quarter as a result of the agreement, and without that, it says its operating income would have totaled $22.9 billion -- representing an increase of 12% from the previous year.

Overall, however, it was another solid quarter for the business. In addition, its guidance for the current quarter was also better than the $73.7 billion analysts were expecting. Meta forecasts between $73 billion and $76 billion in revenue for the period.

What may have spooked investors a bit, however, is that for the period, Meta's free cash flow was negative $2.1 billion, compared with positive $10.6 billion a year ago. The company's heavy AI spending has resulted in a significant reduction in free cash flow. Capex spending this past quarter totaled $34.9 billion, up significantly from $19.4 billion a year ago.

The stock is down around 20% from its high, but is it worth buying?

Meta is investing heavily in AI, and CEO Mark Zuckerberg says he is confident that the efforts are well worth it, stating, "Our investments are paying off, the core business is strong."

Investors, however, may be a bit unsure about that these days, as despite a seemingly modest valuation, the stock is down 15% in the past 12 months. Based on analyst projections, it's trading at a forward price-to-earnings multiple of just 18, which is lower than the S&P 500 average of 19.

The legal issues related to social media health and concerns about high AI spending suggest that the stock should trade at a slight discount, given the uncertainty and risks ahead. That's why, while it may look cheap these days, I'd still take a wait-and-see approach.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.