Meta Platforms Stock: A Buy Opportunity Amidst AI Investment Concerns?

Investors are showing significant disappointment following Mark Zuckerberg's comments on Meta's ambitious plans for artificial intelligence (AI) investments. Despite the discontent, an analysis of the stock's current situation and future prospects could paint a different picture for potential buyers.

Meta Platforms experienced a strong first quarter with notable performances from Instagram, WhatsApp, and Facebook, surpassing anticipated revenue and earnings. Nevertheless, Meta's stock took a hit in after-hours trading, plunging about 15% by the time markets opened on April 25.

The decline in Meta's stock value came as a result of a combination of lower-than-expected revenue forecasts for the second quarter and investor skepticism over Zuckerberg's expensive vision for AI. Despite projecting revenues in excess of Wall Street's expectations, the company's capital expenditure forecast—primarily funneled into developing a generative AI chatbot—has been adjusted upwards, raising budgetary concerns.

Investors have been somewhat wary since Meta's previous large-scale investment in the metaverse yielded less-than-satisfactory results, with Reality Labs operating at a significant loss and a decrease in metaverse-related sales.

Is Meta Stock Worth Buying on the Current Dip?

Despite Meta's costly forays into the metaverse and AI chatbots, it remains an attractive buy for several reasons. Chatbot technology has existing commercial demand, unlike the metaverse which is still struggling to gain mainstream adoption. Moreover, Meta's robust advertising business continues to generate strong profits, which could potentially offset losses from new product investments.

Last year's advertising industry faced cyclical headwinds, yet Meta still maintained a respectable 12% return on assets. This performance reflects a strong competitive advantage, supported by a network effect evidenced by an average of 3.24 billion daily active users across Meta's app suite.

The durability of Meta's network effect, even in the face of new industry competitors like TikTok, suggests an underlying resilience within the company. Despite concerns, many users remain engaged with its platforms for various community and communication services.

The Price Equation

Notwithstanding the substantial investment in AI and the metaverse, Meta continues to reward shareholders with dividends and share buybacks. The stock offers a 0.5% yield dividend, and in the first quarter, it repurchased $14.6 billion worth of shares.

The company's trailing-12-month earnings per share have seen significant growth over the past five years, and if this trajectory continues, the stock could be undervalued at its current price point. Therefore, buying Meta stock during this dip might be a wise long-term investment strategy for those willing to look past the immediate AI investment concerns.

Meta, Stocks, AI