Is Meta Stock a Buy After Its Recent Drop From Glory?

• StockStory Top Pick META +3.78%

One of the most interesting stocks to watch in the market right now (in my opinion) is that of Meta Platforms (NASDAQ:META).

Quick Read

• Meta Platforms (META) shares declined 25% from their 2024 peak amid AI spending concerns.

• Meta generates more than 4 billion eyeballs across its social media applications globally.

• Meta’s Reality Labs division is starting to show operating profitability after heavy losses.

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Shares of the social media and online advertising giant have been on a wild ride of late. A market selloff driven by concerns around artificial intelligence (AI) spending has sent shares of every major mega-cap tech stock investing heavily in this trend (and Meta is one of the group) down significantly. From Meta's peak this year to its current level, shares are trading off around 25%. That's a big move in a short amount of time, and one for investors to consider.

There are some in the bullish camp, like myself, who think this dip is one that's likely worth buying for those thinking long-term. But there are certainly reasons why some investors may choose to look past Meta toward other high-growth names right now, considering the company's balance of risks.

Let's dive into the bullish and bearish case around Meta right now.

Bad News First - Here's What the Bears Are Focusing On

Stock chart falling precipitously

Remember the whole debacle around Meta's Reality Labs division? The company's heavy spending on its metaverse goals, in becoming a leader in both the hardware and software supporting virtual reality and a metaverse-driven future, hasn't really led to anything in the way of profitability. And while the company has ramped down its spending considerably in this division, it's the money-losing aspect of trying to be first (or capture some first-mover advantage in a nascent market) that has some investors worried.

Meta's core social media business is a cash cow for investors. There's no doubt about that. But if Meta continues to throw tens or hundreds of billions of dollars toward ideas that may not have any profit potential for five or 10 years, some investors may head for the exits.

With concerns around overarching profitability for AI-focused firms, analysts and market participants are clearly sharpening their pencils on what this current CapEx spending will ultimately result in, in terms of profits, down the line.

For some, the juice may not be worth the squeeze, and Meta's recent spending binge on AI may look eerily similar to its all-in bets on the Metaverse a few years ago.

Here's the Good News - Efficiency Is Still Going to Be a Paramount Strategic Goal

Woman cheering while looking at her computer

To combat these concerns around over-spending, Meta's management team listened. In fairness, other companies that the market clearly dictated were heading in the wrong direction may not have pivoted so abruptly, and that's one of the key reasons I'd argue Meta stock rebounded from its 2022 lows so quickly.

In Meta's case, this is far from a metaverse or AI stock. This is a company that's a social media giant first, with more than 4 billion eyeballs globally turning their attention to one of the company's core applications. Meta is a dominant force in the world of social media, and has continued to take online advertising market share from other mega-cap tech players, which is encouraging for investors.

Indeed, despite what many may view as "wasted" spending, or throwing good dollars after bad in the metaverse race, Meta is starting to show some operating profitability in its Reality Labs business unit. If Meta can continue to focus on efficiency and profitability, balancing out its AI spending plans with margin expansion goals and other monetization efforts (or an acquisition or two along the way), this is a stock that could have big upside from here.

Right now, I'm of the view that the company's fundamentals support its current valuation, and I do think Meta's standing as a leader in AI should position the company well for growth down the line. For those thinking five to 10 years down the road, I do think this spending will ultimately widen the company's moat. That's what most bulls are hopeful of, though it's unclear what the numbers will ultimately say. That's what makes markets.

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