Meta Platforms (NASDAQ:META) stock might have enjoyed a nice late-November relief rally, but shares are still off close to 19% from their highs, and after dipping more than 1% on Monday’s session, the recovery bounce might be running out of steam. Either way, the relative bout of underperformance, which is based primarily on fears of the company’s aggressive spending on AI and AI infrastructure, may be opening up a nice window for the AI bulls to pick up the year-to-date market laggard at a reasonable discount.
It’s hard to believe, but the Magnificent Seven AI titan has been anything but this year, gaining around 6% while the S&P climbed more than double that year to date. While there have been signs that investors are a bit more willing to warm up to tech (and AI tech) again in recent weeks, it’s tough to tell what the next big move will be now that the Mag Seven members aren’t moving together anymore. Either way, it seems like what ails shares of Meta Platforms is not too difficult to fix.
Whether CEO Mark Zuckerberg needs to undergo another “year of efficiency,” like the one that helped pave the way for a historic multi-bagger rally in the stock, or something else, it seems like investors are holding off until there’s more confirmation that aggression on AI is the right way to go.
Is AI spending getting a bit too hot?
For many investors, it’s clear that the AI budget is a bit too much to handle, especially amid “AI bubble” fears and the recent reaction by investors to what have been some pretty decent earnings results. Though I do think Zuckerberg and company could please traders by trimming away at the budget going into the new year, I’d argue that it makes very little sense to pull too many levers in response to November market action that may very well prove to be an overreaction.
As such, I think investors should be net buyers, regardless of whatever the firm decides to do with spending for the year ahead. Relatively speaking, the AI spend might be aggressive, but so, too, could be the rewards over the next three years.
In a prior piece, I highlighted the small cuts to the AI team as signs that management was looking for a level that’s “just right” such that Meta doesn’t cut too deep such that the firm can’t catch up to the leaders in the AI race while also not scaring short-sighted investors who have let the “AI bubble” talks get to them, perhaps by enough to make them hit the sell button on their AI stocks.
In any case, I think the latest shakeout in the stock is a buyable one if you believe in Zuckerberg’s very interesting AI strategy, which might crown it as one of the AI kings in the future if AI ends up being nothing close to a bubble. Personally, I’d much rather that Zuckerberg cut from the Reality Labs division than anything AI-related. Indeed, it does seem like AI might be more monetizable in the new year than many of the recent sellers may think.
Coming quarters will be all about margins and AI monetization
In the coming quarters, expect a magnifying glass to be placed over the company’s margins as well as growth in AI-driven tools such as Advantage+ ads and all sorts. Additionally, look for platform engagement and other aspects of the business to show glimmers of strength as Meta looks to monetize its ambitious AI spend sooner than some of its spend-heavy peers.
At the end of the day, it seems like the front-loaded spend has already been priced into the stock. And if the rewards begin to trickle in, I’d look to be more constructive on the name. Perhaps the biggest needle mover will be commentary from Mark Zuckerberg himself, as he looks to shine more light on how things are going with AI and what the next move will be.
Either way, I don’t think a big course correction or year of efficiency is needed to keep Meta shares rolling higher again. The November dip seems more like an overreaction than anything, and you can bet that Zuckerberg will still play the long-term game despite any near-term fluctuations that might not be anything more than a blip.
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