Meta Platforms META) stock has endured a rough stretch recently, with shares down 10% this month and off roughly 15% year-to-date.
The decline has come despite continued strength across many of the tech leaders’ core businesses. To that point, Meta is still benefiting from powerful competitive advantages, including its massive user base, extensive advertiser relationships, and strong balance sheet.
Combined with ongoing AI-driven opportunities, these strengths could support long-term earnings expansion.
This raises an important question for investors: Has the recent selloff created an attractive opportunity, or are there still reasons for caution?
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Meta Continues to Dominate Digital Advertising
Meta remains one of the most influential players in digital advertising, supported by its massive family of apps that includes Facebook, Instagram, Messenger, and WhatsApp. Collectively, Meta continues to attract billions of daily users worldwide, giving advertisers unparalleled reach and engagement opportunities.
Furthermore, advertising demand has remained healthy as companies increasingly rely on digital channels to connect with consumers. Meta’s advanced targeting capabilities and AI-driven ad tools have also helped improve campaign effectiveness, supporting strong monetization trends across its platforms.
As a result, Meta continues to generate substantial cash flow and impressive profitability despite ongoing investments in future growth initiatives.
AI Investments Could Drive Long-Term Expansion
Artificial intelligence has become a major focus for Meta, with management aggressively investing in infrastructure, including data centers and computing capacity, to support increasingly sophisticated AI models.
These investments are not only intended to improve the user experience but also to enhance advertising performance. In this regard, better recommendation algorithms and more effective ad targeting are helping to increase engagement while boosting returns for advertisers.
In addition, Meta is exploring opportunities to integrate AI across its product ecosystem, potentially creating new revenue streams and strengthening its competitive position over the long term.
That said, it’s worth noting that Meta expects spending to accelerate even further this year, with 2026 capital expenditures projected between $115 billion-$135 billion, underscoring just how aggressively the company is pursuing its AI strategy.
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The Reality Labs Question Remains
While Meta’s core business remains highly profitable, investors continue to closely monitor the company’s Reality Labs segment.
The division, which houses Meta’s virtual reality and metaverse initiatives, has generated substantial operating losses for several years. Although management views these investments as critical to the company’s future, the timing and magnitude of potential returns remain uncertain.
Some investors worry that continued spending towards its Reality Labs division could pressure margins and reduce earnings growth, particularly if economic conditions weaken or advertising demand slows.
Analysts Still Expect Strong Growth
Despite recent weakness in Meta stock, Wall Street continues to project healthy growth. The Zacks Consensus Estimate calls for 2026 revenue of $253.28 billion, representing 26% growth from the prior year. Analysts currently expect revenue to climb another 20% in 2027 to over $300 billion.
While earnings growth is expected to moderate, the consensus still calls for Meta’s EPS to increase 40% this year to $33.00, followed by a 6% increase in FY27 to $35.02.
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The Cheapest P/E Valuation Among the Mag 7
Following the recent decline, Meta now has the cheapest P/E valuation among the Mag 7 at 19X forward earnings, followed by Microsoft MSFT) and Alphabet GOOGL) at 22X and 24X, respectively.
More intriguing, META is trading at a 20% discount to its decade-long median of 24X forward earnings and is more than 50% beneath its high of 43X during this period.
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Bottom Line
Meta Platforms remains one of the highest-quality technology companies in the market, and the recent pullback may encourage more investors to take a closer look at its stock. The company’s dominant advertising franchise, strong cash generation, and growing AI capabilities provide compelling long-term growth drivers.
At the same time, investors should recognize that Meta is not without risks. Elevated capital expenditures, regulatory scrutiny, and uncertainty surrounding Reality Labs could continue to create volatility. For now, META lands a Zacks Rank #3 (Hold).
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This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
