What's Wrong With Meta Platforms Stock?

Meta Platforms (NASDAQ: META) stock has been struggling of late. It's underperforming the market, which it also did last year. While the company looks to be a big player in artificial intelligence (AI), the excitement around the stock has cooled off significantly over the past several months.

This year, the social media stock is in negative territory, and it is down around 24% from its 52-week high of $796.25. What's wrong with the stock, and is it likely to fall even lower, or could this be a great time to add it to your portfolio?

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Investors may be growing concerned about Meta's AI spending plans

While AI can be a big growth opportunity for tech companies, investors have no doubt become concerned with just how much these businesses are investing in AI. Earlier this year, Meta announced it would be spending between $115 billion and $135 billion on capital expenditures for 2026, as it looks to develop "superintelligence." By comparison, last year, the company's total capital spend was $72 billion.

The problem is that investors may be concerned about whether such significant investments will pay off. Meta has, after all, poured billions of dollars into the metaverse, which continues to be a drain on the business. Last year, its Reality Labs division incurred losses totaling more than $19 billion. The company has recently been backing away from its metaverse efforts as it pivots more toward AI, but it's a reminder that the business hasn't always been that careful with its spending in the past, and AI could be a continuation of that.

Can Meta's stock turn things around this year?

Meta's business is fundamentally strong, as the company generated 22% revenue growth last year, and its profit margin was impressive at 30%. Remember, this is even as the company burned through cash on the metaverse. The sheer financial strength it possesses enables it to take on these types of risks and still produce strong results. The stock is also not that expensive, as it trades at 25 times its trailing earnings, which is roughly in line with the S&P 500 average multiple of 24.

However, the stock is down about 9% this year, and it will have a tough time turning things around, given the bearish sentiment on tech of late and concerns around high AI spending. Unless Meta can show that its aggressive AI push is paying off, the stock may continue to fall lower in the weeks and months to come. And with it having a bad reputation for spending too heavily in the past, I'd take a wait-and-see approach with the stock right now.

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.