Meta Stock Drops 20% as Smart Money Sees a Buying Opportunity

TLDR

• Meta stock trades at $647.95, up 2.26%, after dropping 25% from October highs due to concerns over $150 billion AI spending forecast for 2026
• Q3 revenue hit $51.24 billion, up 26.3% year-over-year, with ad impressions climbing 14% and EPS rising 20.2% to $7.25
• Daily active users across Meta’s platforms reached 3.54 billion, up 8% year-over-year, with family revenue per user jumping 18%
• Meta trades at forward P/E of 22.8x, representing a 30-40% discount compared to other major tech stocks like Nvidia and Microsoft
• Company in talks with Alphabet to purchase lower-cost TPUs, potentially reducing data center construction expenses while maintaining computing power

Meta Platforms trades near $647.95 following a sharp decline from its October highs. The stock dropped roughly 25% as investors reacted to management’s aggressive capital spending plans.

Meta Platforms, Inc., META

The company plans to invest nearly $150 billion in AI infrastructure during 2026. This represents a 108% increase from Q3 2025’s $19.4 billion spend. Wall Street initially viewed this as a threat to cash generation.

The numbers tell a different story. Q3 results showed revenue reached $51.24 billion, beating estimates by 3.7%. This marked a 26.3% jump from the prior year.

Ad performance drove the growth. Impressions climbed 14% while the average price per ad increased 10%. Earnings per share surged 20.2% to $7.25 despite record infrastructure spending.

CEO Mark Zuckerberg pointed to three giant AI transformers now powering recommendations across Facebook, Instagram, and ads. These AI-powered ad tools now generate over $60 billion in annualized revenue throughput. The technology already delivers measurable improvements in ad efficiency and user engagement.

Facebook users spent 5% more time on the platform in Q3. Threads users increased their time by 10%. These gains stem directly from AI-driven content discovery and ad ranking systems.

User Growth and Monetization Accelerate

The Family of Apps reached 3.54 billion daily active users. This represented an 8% year-over-year increase. Family average revenue per user climbed 18%, showing monetization is improving faster than user growth.

Operating income rose 17.8% to $20.5 billion. Margins compressed from 43% to 40% due to front-loaded AI infrastructure costs. Net income declined to $2.71 billion, but this drop was largely optical.

A one-time $15.93 billion deferred tax asset write-down related to U.S. tax law changes distorted the bottom line. Excluding this item, the effective tax rate would have been 14%. Normalized profit margins remain strong.

Management guided Q4 revenue between $56 billion and $59 billion. This implies 18.8% growth at the midpoint. The forecast signals sustained engagement across all platforms.

Meta holds $44.45 billion in cash against $28.8 billion in debt. This preserves balance sheet flexibility despite negative free cash flow of $1.89 billion in Q3. Operating cash flow still improved 21.3% to $30 billion.

The current investment cycle differs from the metaverse overbuild of 2021-2022. Meta’s spending now supports profitable products rather than speculative technologies. AI models drive both ad ranking and content discovery, improving user retention and engagement time.

WhatsApp represents a largely untapped revenue source. The platform has 1.5 billion daily users. Ad placements in Status and Business API services are in early-stage rollout. Even modest monetization could generate over $3 billion in annual incremental revenue.

A report surfaced that Meta is in talks with Alphabet to purchase tensor processing units. These specialized chips compete with Nvidia’s graphics processing units at lower price points. The deal could reduce data center construction costs while maintaining computing power.

At a forward P/E of 22.8x, Meta trades at a discount to peers. Nvidia trades at 38x, Alphabet at 28x, and Microsoft at 33x. The company’s market cap stands at $1.63 trillion.

The Family of Apps division generates 49% operating margins while Reality Labs continues producing losses. If Reality Labs impact were excluded, Meta’s adjusted operating margin exceeds 50%.

The company faces regulatory pressure from European and U.S. authorities. Data privacy and AI-generated content laws could constrain ad targeting flexibility. Competition from TikTok and other platforms remains a factor.

Meta’s $70 billion to $72 billion capex plan for 2025 will consume nearly all cash generated from operations. For 2026, the figure is expected to exceed $100 billion. This spending level has spooked investors despite strong revenue growth.

Wall Street analysts rate Meta 4.61 out of 5, representing a strong buy consensus. Technical indicators show RSI climbing from 23 to 47.5 within a week. The 50-day moving average at $655 acts as immediate resistance.

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