A lot of major hedge funds were quite busy ringing the register on some of the beloved big-tech stars in the third quarter. And while it’s just not possible to know the reason behind such trimming activity, I do think that it’s now quite apparent that such profit-taking was the right move now that some of the names, including Meta Platforms (NASDAQ:META), are now down considerably from their peak. Now, it’s been a turbulent year for Meta Platforms stock, which is still lagging the S&P 500, with just north of 10% returns so far this year.
Undoubtedly, AI spending jitters have weighed on Meta Platforms far more than some of the other Mag Seven giants. Given Meta Platforms’ willingness to pay up for the best-in-breed AI talent out there, perhaps it’s not a shocker that shares would find themselves down by so much in such a short timespan.
Lots of hedge funds sold Meta Platforms stock in Q3. Does it matter?
Of course, hedge fund activity may be seen as a red flag for some, a yellow flag for others, and perhaps no flag at all for most. Though I believe there’s value in seeing what the smart money has been up to, I also acknowledge that nobody, not even the greats, knows with certainty where markets are headed in the near term.
And that includes a quarter-to-quarter basis. Still, combined with broad AI bubble chatter that’s bombarding the financial news as well as many smart people saying scary things about the future of the market and the tech trade, it doesn’t seem all too unwise to take profits in the hot trades where there are still profits to be had! Though I saw more sells and trims than buys and top-ups of shares of Meta Platforms in the third quarter, much of the selling was mere position trimmings, not liquidations.
Although there were a few hedge funds that seemed to be playing with the house’s money (more than a 50% stake reduction). In any case, that was then (Meta Platforms’ stock was higher in the third quarter than today), and this is now. Right now, we don’t know what those same hedge funds are doing with Meta Platforms. Perhaps it’s time to be more bullish than bearish, especially since the shares have dropped close to 26% from peak to trough.
While Meta Platforms has been spending heavily on AI efforts, I do not believe the punishment (the near-26% fall from peak to trough) is fitting. Regardless of what the hedge funds are up to today, I view Meta Platforms stock as a worthy pick-up.
Cuts to Reality Labs might be a turning point in the stock
In a prior piece, I noted that I wanted to see the firm cut from its Reality Labs division. Fast forward to today, and the metaverse division might be cut by 30%. The move seemed to beckon the dip-buyers back in, with shares rising close to 3.5% in a single day following the news. Of course, the metaverse efforts have been quite the cash sink.
And while Meta still seems focused on spending a great deal on AI, I do think pulling back on such efforts is a brilliant move. In my view, AI should come first; all else, including the metaverse vision, should come afterward. Arguably, it’s easier to build a metaverse when one already has superintelligence.
The big question is what kind of reaction could happen in Meta Platforms stock if the cuts were to get deeper at some point down the road. Surely, the shelving of such a pricey, less-timely (at least in my view) ambition would be received very positively. Personally, though, I think the cuts won’t take much, if any, momentum out of Reality Labs. If anything, it might be full speed ahead with the metaverse with fewer people.
The bottom line
In short, the last quarter of selling in Meta Platforms shares isn’t a red flag, in my opinion, especially now that shares have corrected so viciously. At this juncture, I think there’s more of a green flag in the stock’s depressed valuation.
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