Key Points
Meta Platforms is down 19% over the last six months due to spending concerns and a delay with its latest AI model.
The fundamentals are still strong, with revenue growth of 22% last year and a high operating margin.
Meta Platforms (NASDAQ: META) investors got some bad news last Friday, with reports that the company would delay its latest AI model, Avocado. It was the latest setback for the social media giant, which is down 19% over the last six months (as of March 13), largely due to concerns about its spending on AI infrastructure.
Delays like this are problematic, especially given Meta's AI spending, with capital expenditures projected to range from $115 billion to $135 billion in 2026. Even so, the current dip looks like a serious overreaction.
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Meta's core business, ads, is as strong as ever. Revenue in 2025 was $201 billion, a 22% year-over-year increase, and 98% of that came from ads. Meta also had an excellent operating margin of 41%. For comparison, Alphabet, another company that relies heavily on ad revenue, had an operating margin of 32% last year.
Meta has experienced high-profile missteps, most recently the Avocado delay. And it's spending an enormous amount of money on AI, although that's par for the course these days for the top tech companies -- Alphabet and Amazon have since announced even larger capex plans. But this is still a highly profitable and efficient business that delivered significant revenue growth.
It's also an affordable stock after the recent pullback. Meta trades at just 20 times forward earnings. That's a bargain for a tech giant, making Meta the cheapest member of the "Magnificent Seven" by that important metric. If you're looking for undervalued tech stocks to add to your portfolio, Meta is worth considering.
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Lyle Daly has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, and Meta Platforms. The Motley Fool has a disclosure policy.
