Down About 10% in Less Than a Week, Is Meta Platforms Stock a Buy?

After surging higher last week following the social media company's fourth-quarter earnings report, shares of Meta Platforms (NASDAQ: META) have now given up all of their post-earnings gains as of this writing. In fact, from the stock's closing price on Jan. 29 (the trading day following the social media company's earnings release), shares have fallen about 10%.

The stock's decline comes amid a pullback in the broader market as shares of many software and AI (artificial intelligence)-focused companies are getting punished. The tech-heavy Nasdaq Composite is down about 3.5% during this period.

With the stock back at levels it was trading at before its better-than-expected fourth-quarter update, should investors take this second chance to buy the stock at pre-earnings levels?

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Undeniable business momentum

It wasn't surprising when investors reacted so positively to Meta's fourth-quarter update. Its revenue soared 24% year over year to $59.9 billion, blowing past analysts' consensus forecast for revenue of $58.5 billion. And its earnings per share of $8.88 similarly left analysts' forecasts for the metric in the dust.

In addition, the company's underlying platform health remains healthy. Meta said its daily active users across its platforms rose an impressive 7% year over year to 3.58 billion. Further, Meta said engagement and user growth were the primary drivers for its 18% year-over-year increase in ad impressions in its fourth quarter.

And management guided for more strong growth ahead. In fact, the midpoint of its first-quarter revenue guidance implies 30% year-over-year growth. Even when excluding an expected 4% tailwind from foreign currency in the quarter, this represents 26% year-over-year growth -- an acceleration from its fourth-quarter growth rate.

1 reason to be cautious

While Meta's revenue momentum is incredibly impressive, investors should know that this growth has come at a cost. Part of the acceleration in Meta's business reflects the company's aggressive investments in AI. But AI is costly.

Capturing the company's heavy investment stance, Meta's costs and expenses rose 40% year over year in Q4, weighing on earnings growth. The company's operating margin plummeted from 48% in the year-ago period to 41%, and earnings per share grew just 11% year over year -- less than half of its revenue growth rate.

Even more, despite management's outlook for a strong start to 2026 as far as revenue goes, the company only expects its full-year 2026 operating income to be "above" 2025 operating income.

This low-bar outlook for its operating income growth reflects the heavy investment cycle Meta is currently in. The company expects full-year capital expenditures to be between $115 billion and $135 billion, up from about $72 billion in 2025. And it guided for full-year expenses of $162 billion to $169 billion, up from about $118 billion in 2025.

This massive spending cycle largely boils down to the company's gamble on AI.

"We are now seeing a major AI acceleration," said Meta founder and CEO Mark Zuckerberg in the company's fourth-quarter earnings call. "I expect 2026 to be a year where this wave accelerates even further on several fronts."

To capitalize on this AI wave, the company is spending heavily.

Is the stock a buy?

All of this brings us back to our question: With the stock giving back all of its post-earnings gain, is this a good time to buy? For investors willing to hold shares of the tech company for the long haul, probably.

But given the company's major investments in AI and the fact that investors will have to put a lot of trust in management since this investment cycle requires a near-term hit to operating margin, investors should treat an investment in Meta like the high-risk investment that it is. This means investors should keep any position in the stock small.

With the stock trading at a price-to-earnings ratio of about 28 as of this writing, I think the current valuation does a pretty good job of factoring in the risks the company faces. But the stock isn't cheap either, so investors who buy the stock should make sure they really believe in Zuckerberg's big AI bet. If it doesn't go well, the stock could perform poorly from here.

Daniel Sparks and his clients have 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.