Should You Buy Meta Platforms Stock While It's Below $600?

As the market focuses on SpaceX, the hot new investment opportunity in artificial intelligence (AI), Meta Platforms (NASDAQ: META) shares have been under pressure. The stock has been falling in recent days, and since the start of the year, it's down around 14%.

The stock has traded above $600 for much of the year, and even at that level, its valuation hasn't looked all that high given its level of profitability and growth. With it now below that, has it become a bargain buy?

Image source: Getty Images.

Are investors growing concerned about Meta's AI spend?

What may be rattling investors about Meta these days is its heavy expenditure on AI. The company has launched a new Superintelligence Labs division, brought in Alexandr Wang to lead it, and is now also reportedly looking to raise tens of billions of dollars to continue investing heavily in AI. While it has launched AI subscriptions that could offset the cost of investing in new AI capabilities, how much that might really offset is questionable. And the need to raise billions suggests that Meta knows it won't be nearly enough.

Excessive spending has been a problem for Meta and the broader tech sector in recent years. There was a big push during the pandemic to ramp up capabilities due to new trends and heightened online spending, as consumers benefited from stimulus payments and had more money to spend. Meta also touted the next big opportunity as the metaverse, so much so that it even changed its name. Ultimately, it and other tech companies would lay off staff and cut expenses. Now, concerns may be playing out similarly in AI. While there is potential for AI to enhance products and services, the hype may not match reality, and Meta is spending wildly, yet again.

Meta's stock looks cheap, but that may not be enough of a reason to buy it

If you look at Meta's price-to-earnings multiple of 21, you may conclude that it's a cheap-looking stock in the tech sector, and thus, worthy of buying right now.

But there are risks to consider, such as the growing attention on social media harms to children and on age verification, which could impact its business in the long run. And if it ends up having to curtail spending on AI again, that may add restructuring costs, thus pushing that earnings multiple higher in the process.

Meta's leadership is the biggest concern I have with the stock, with it continuously being too eager to chase the latest trends, and AI is no exception; the company launched a new AI model this year, when there are already arguably too many to keep track of as it is. Although I'm not denying the stock isn't reasonably valued, I think investors shouldn't ignore the broader risks and uncertainties that come with owning Meta's stock; I'd avoid it.

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.