History Suggests That You'll Regret Not Buying This Struggling Tech Stock

It has been a rollercoaster year for the "Magnificent Seven" stocks, the name given to tech titans Nvidia, Apple, Microsoft, Amazon, Alphabet, Tesla, and Meta Platforms (NASDAQ: META). Of the group, only Meta and Tesla are in the red for the year, down 1.2% and 18.8%, respectively, through market close on Sept. 10.

Both have their fair share of issues, but Meta is a struggling stock that seems to have plenty of upside from its current level. And if history is any indication of what's possible, you may regret not investing while it's having an off year.

Why is Meta's stock struggling?

No single issue is dragging down Meta's stock; it's a combination of factors, with the two main ones being its AI spending and its ongoing regulatory issues.

This year, Meta is slated to spend between $130 billion and $145 billion on AI-related projects, such as building data centers and other infrastructure. In the second quarter (Q2), it spent $31 billion, which, for perspective, is more than all but 26 public companies have made in profits in their past four quarters combined.

Meta's heavy spending weighed on its free cash flow, which fell from $13.2 billion in Q1 to $1.7 billion in Q2. As expected, investors are rarely happy when a company's spending slashes its free cash flow by so much.

META Capital Expenditures (Quarterly) data by YCharts

Regarding regulatory concerns, Meta recently reached a proposed settlement of up to $18 billion due to claims that its apps were purposely addictive and contributed meaningfully to teen mental health decline.

The court case had loomed over Meta for years, and although $18 billion isn't cheap, it's much less than what the company could have faced in a full trial. California, Colorado, Kentucky, and New Jersey had sought penalties up to $1.4 trillion. All things considered, Meta has probably never been happier to spend $18 billion.

Can Meta finally start justifying its spending?

One of Meta's first attempts to address investor concerns over its AI spending is the recently announced release of its personal AI agent, Muse.

While companies like ChatGPT's creator, OpenAI, and Claude's creator, Anthropic, have pushed their enterprise and coding tools heavily, Muse is more consumer-focused. Of course, ChatGPT and Claude benefit consumers as well, but Muse is more of a personal assistant for everyday tasks. Meta's stock jumped more than 6% in after-hours trading on Sept. 8 after the release.

Time will tell just how effective (and lucrative for Meta) Muse ends up being, but the current bright side is that Meta has found a direct way to monetize its AI tools.

Image source: The Motley Fool.

Meta is still an undeniable cash cow

Stock price struggles aside, one thing you can't take away from Meta is how much money it keeps making. In the second quarter, total revenue rose 28% year over year to $60.8 billion, with $59.4 billion coming from advertising across its Family of Apps (such as Facebook, Instagram, and WhatsApp).

Meta's main goal is to attract eyeballs, and it continues to do so at a high rate. It has 3.6 billion daily active users across its apps; Instagram has over 2 billion daily active users; and Threads now has over 500 million monthly active users.

Maybe more important than the user figures themselves is that Meta has increased how much it makes per user. Its average revenue per person jumped up 24% year over year to $16.86. More eyeballs and more money coming from eyeballs is a winning strategy for the social media giant.

With consistent growth and a strong financial position, Meta's stock looks like a good value right now, trading at 24.6 times its earnings. The only "Magnificent Seven" stocks trading lower are Amazon and Alphabet.

Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.