Meta Platforms Looks Unbelievably Cheap After the Tech Sell-Off. Is It Time to Load Up on Shares?

Meta Platforms (NASDAQ: META) hasn't had the greatest run over the past few months, and it's currently down 25% from its all-time high. The sell-off worsened over the past week as some tech stocks took a bit of a beating.

However, I think Meta Platforms will deliver solid returns if the market values the company properly. But will that happen soon? Let's take a look.

Image source: Getty Images.

The market is skeptical about Meta's AI spending

First and foremost, Meta Platforms is a social media company. Better known by its original name, Facebook, Meta owns other social media properties like Instagram, Threads, and WhatsApp. Meta generates a ton of advertising revenue from these platforms, and that's Meta's primary business.

However, Meta is trying to change that situation. It is spending hundreds of billions of dollars on artificial intelligence (AI) computing capabilities via building data centers. The only real return on investment these data centers have provided to date comes from boosting Meta's advertising revenue, as AI has improved targeting on its platforms. But given how much Meta has spent on data centers, a solid advertising revenue bump isn't enough, so the market has priced Meta's stock skeptically.

META PE Ratio (Forward) data by YCharts

At 19 times forward earnings, it trades a fair bit down from the S&P 500, which is priced at 21.5 times forward earnings. This spread is further exaggerated by the fact that Meta grew its revenue at a 33% pace during its most recent quarter. With the S&P 500 growing at about 10% each year, Meta's growth potential is far greater at a lower price. That makes for a bargain stock, but Meta's stock will rise to premium status only if it can launch a worthy AI product.

This could come in the form of a personal superintelligence model that Meta has been discussing, giving everyone on Earth a powerful AI assistant that can understand a person's health, goals, and culture. Devices like AI glasses that can help contextualize the world around them to make sense of what a user is asking can also boost Meta's potential.

These are products Meta hasn't released yet, but is actively working on. If it can deliver, the stock has massive room for upside. If it can't, then it may stay at these lower levels until its AI spending is wrapped up.

Keithen Drury has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.