Why Meta Platforms Stock Popped Today
Key Points
Meta Platforms has been criticized by investors for spending tens of billions of dollars on the metaverse, which has never really taken off.
Reports suggest that the company is planning cuts of up to 30% to its metaverse budget.
The stock is attractively priced for investors looking to take the plunge.
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Shares of Meta Platforms (NASDAQ: META) rallied Thursday morning, gaining as much as 5.7%. As of 11:59 a.m. ET, the stock was still up 4.1%.
The catalyst that sent the social media and artificial intelligence (AI) specialist higher was a report that the company plans deep cuts to its metaverse spending.
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Big cuts
As part of the company's budget planning process for 2026, executives at Meta are considering slashing spending on the metaverse by as much as 30%, according to a report by Bloomberg. CEO Mark Zuckerberg is looking to cut the company's overall spending by as much as 10% next year, with the majority of those cuts coming from Meta's ill-fated pivot to embrace the digital realm that has never really materialized.
The company spent heavily on its Reality Labs division, which includes the metaverse, its Meta Quest virtual reality (VR) headsets, and its augmented reality (AR) smart glasses. The segment has reportedly lost more than $70 billion since early 2021, prompting investors to call for a halt in the runaway spending.
Meta has had greater success in recent years with the adoption of AI. In the third quarter, Zuckerberg said its AI recommendation system was "delivering higher quality and more relevant content" across the company's social media services and increasing engagement. In the third quarter, users spent 5% more time on Facebook and 10% more time on Threads. Higher engagement is driving up ad revenue, as the average price per ad increased 10%. Furthermore, Meta's family of Llama AI models are among the best in the industry.
Given Meta's current focus on AI, it's likely Zuckerberg is looking to divert crucial resources to further profit from this groundbreaking technology.
Is the stock a buy?
Investors cheered the news that Meta is finally scaling back spending on the metaverse, a strategy that never really panned out. If the company's recent AI-fueled results were any indicator, this pivot is already bearing fruit.
Despite the company's recent results, Meta stock has stalled over the past year, gaining roughly 9%. There has been a commensurate decrease in its valuation, as Meta stock is selling for 29 times earnings, making it the cheapest of the Magnificent Seven stocks and an attractive price to pay for a company making all the right moves.
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Danny Vena, CPA has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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