The Cheapest "Magnificent Seven" Artificial Intelligence (AI) Stock Just Got Even Cheaper. Here's Why I'm Not Waiting to Buy.
Key Points
Meta is the least expensive big tech stock as measured by the forward price-to-earnings (P/E) ratio.
A low forward earnings multiple suggests the market thinks Meta's profitability growth will lag its competition going forward.
Meta is making meaningful strides in artificial intelligence (AI), justifying its massive infrastructure build-out.
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Mark Zuckerberg spent years being one of the most ridiculed CEOs in big tech -- touting augmented reality (AR) glasses, virtual offices, and a metaverse that nobody asked for. Then the billionaire entrepreneur leaned into artificial intelligence (AI), Meta Platforms (NASDAQ: META) stock price tripled, and Wall Street crowned him an expert in capital allocation.
Now, just as Meta has become the most attractively valued stock in the "Magnificent Seven" based on forward earnings projections, investors are souring again. The irony is poetic. Let's unpack why the reflexive fears surrounding Meta are almost certainly wrong.
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Data by YCharts.
The real reason sentiment shifted on Meta stock
Investors aren't rotating away from Meta because its business is deteriorating. Rather, the panic-selling is really a function of Meta's aggressive capital expenditure (capex) ambitions in a potentially recessionary macro environment. When the Federal Reserve looks unsure regarding which direction monetary policy should move while consumer confidence slides, a company announcing $135 billion in infrastructure commitments becomes an easy target.
In these scenarios, the market often rerates first and asks questions later. Meta went from being viewed as visionary to reckless in a single earnings cycle -- not because the company's underlying profitability changed, but because the risk tolerance around it did.
There's also a more subtle issue at play. Meta's advertising business is deeply tied to small and medium-sized businesses (SMBs) -- a segment that is highly vulnerable to consumer downturns. When economic uncertainty rises, the SMB cohort is usually first to rein in digital ad spend before large enterprises do.
Smart investors understand this relationship, and they are now accounting for a scenario in which Meta's top-line growth stalls while its cost base expands.
Image source: Getty Images.
The discount is an opportunity, not a warning sign
The sell-off in Meta stock (down as much as 20% on the year in late March) showcases how the market is conflating two different risks: the possibility of near-term advertising softness and the opportunity cost of long-term capital misallocation. These factors are independent of one another, yet Meta's current valuation treats them as if they are two sides of the same coin.
Meta's forward P/E trading below every other Magnificent Seven member suggests the market thinks Meta's earnings power is fragile -- poised to underperform big tech for an extended period. This argument is difficult to support given Meta's competitive moat. No other platform features what Meta has built: three separate ecosystems with 1 billion or more regular users -- Facebook, Instagram, and WhatsApp -- powered by a single AI inference layer.
The company's advertising system isn't just running marketing campaigns and targeted ads. Meta's ecosystem is a full-funnel commerce network closing transactions at a global scale. The company's progress with AI-powered ads through Advantage+ demonstrates that Meta's upside is still in the early innings -- yet the market is pricing the stock as if the company is maturing and will plateau.
Buy Meta stock now, not later
The argument for waiting to buy Meta stock is tempting: Let the macro picture clear, let the ad spend numbers prove out in the financials, then buy the stock. This logic ignores how reratings actually work, though. Meta won't trade at a discount once fear passes because the stock will have already catapulted.
Investors who waited for clarity on Meta in 2023 ultimately had to pay more for the same business they could have bought when the world was convinced Zuckerberg had lost the plot during his short-lived metaverse obsession.
Meta stock is the cheapest among big tech for emotional reasons, not fundamental ones. The fear-driven sell-off is the true entry point.
Should you buy stock in Meta Platforms right now?
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Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla and is short shares of Apple. The Motley Fool has a disclosure policy.
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