Is Meta Platforms Stock a Buy on Its Pullback?

After the share price fell 8.5% the session following its Q1 earnings report, the question on many investors' minds is whether this is a buying opportunity in Meta Platforms (NASDAQ: META) stock. The stock is now down around 7% on the year and up about 11.5% over the past year, as of the end of April.

The sell-off once again had nothing to do with Meta's results and guidance, which were strong, but were more about worries about its capital expenditures (capex), which it decided to increase. The social media giant boosted its spending forecast by another $10 billion, taking it to a range of $125 billion to $145 billion for 2026. The main reason for the increase was higher component costs, particularly memory costs, and data center expenses.

Image source: Getty Images.

Strong AI-driven growth continues

The return on Meta's capex spending isn't as easily quantifiable as it is for cloud computing providers. However, its overall acceleration in revenue appears to show that this spending is working.

For the quarter, Meta's revenue climbed 33% year over year to $56.31 billion, which was up from the 24% growth it saw in Q4. Adjusted EPS (which excludes a tax benefit) rose by 14% to $7.31. Analysts were looking for an adjusted EPS of $6.79 on revenue of $55.45 billion, as compiled by LSEG.

Advertising revenue also climbed 33%, coming in at $55 billion. Revenue at Reality Labs, which is home to Meta's metaverse and its augmented reality headsets and smart glasses, fell 2% year over year to $402 million. Operating income from its social media apps increased by 24% to $26.89 billion, while Reality Labs posted a loss of $4 billion versus $4.2 billion a year earlier.

Meta's advertising growth was driven by a 19% jump in ad impressions and a 12% increase in average price per ad. The company credited its use of artificial intelligence (AI) to improve its content recommendation on Facebook and Instagram for the growth and said its new Muse Spark model will be a significant advancement in its AI capabilities. It has also started to deploy business AI functions on WhatsApp and Messenger.

Meta also continues to grow its user base year over year. Family Daily Active People (DAP), a metric measuring registered users who log in to one of Meta's apps daily, rose 4% year over year to 3.56 billion. However, it saw a small sequential dip from 3.58 billion in Q4, hurt by the war in Iran and the WhatsApp ban in Russia.

Another metric investors are watching closely is the company's expenses and headcount. Its overall expenses climbed 35% to $33.4 billion. Meanwhile, its headcount rose 1% year over year to 77,986. However, it said it would reduce its workforce by 10% this month to help offset the cost of its infrastructure spending.

Despite its heavy capex spending, Meta still managed to generate $12.4 billion in free cash flow. However, with its increased spending, it looks like it will have negative cash flow for the full year.

Looking ahead, Meta guided Q2 revenue to be between $58 billion and $61 billion, representing year-over-year growth of 22% to 28%. Analysts were looking for Q2 revenue of $59.5 billion.

Should investors buy the dip?

Given Meta's failed metaverse venture and the massive amount of money thrown at it, it's not wrong for investors to question the company's huge capex spending and the returns it expects from these investments. However, AI is clearly helping drive its growth, and the company's business looks tailor-made for AI.

AI just helps create a huge flywheel effect, where Meta can use AI to improve its recommendation engine and feed users more of the content they are interested in while also serving them more relevant ads. This then leads to more ad impressions and higher prices, since its ads drive higher conversions, and the cycle continues.

Following its sell-off, the stock trades at a forward price-to-earnings (P/E) ratio of below 20 times 2026 analyst estimates. That's way too cheap for its growth and business model, making the dip in this AI stock a great opportunity to add shares.

Geoffrey Seiler has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.