Meta Platforms (META) just got handed a massive $25 billion legal bill. A New Mexico judge recently ordered the tech and e-commerce giant to pay up after a jury found the company violated state consumer protection laws related to the Cambridge Analytica scandal.
That blow hit when shares are already under extreme pressure, down 22% over the past year and roughly 6% in 2026. Shares dropped more than 5% despite a Q3 earnings beat, which brought the one-month drop to near 15%. But here is the thing.
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However, the positive thing is that the company's core business is still growing fast. So is this little selloff a buying opportunity? Let's try to find out.
www.barchart.com The Legal Hit and What It Means
The New Mexico judge ordered a fine of $25 billion from Meta after a jury ruled the company broke the state Consumer Protection Act in the Cambridge Analytica scandal. Meta is appealing the penalty, saying it's unconstitutional and that it'll likely be thrown out in appeals court.
It's quite a judgment, though it could be more or less impactful based on the appeals path taken. Investors' sentiment has been dampened by broader privacy and child-safety legal liability on top of the settlement previously agreed by Meta to settle a lawsuit filed by a multistate coalition against Cambridge Analytica.
The big question now is how many other states will follow suit and add to Meta's legal expenses? The company had ample liquidity, with $44.5 billion in cash and cash equivalents, to buffer it against a financial storm.
And the ruling on its own does not destroy the foundational ads business for Meta. So despite the high cost, this isn't a serious threat to its ads business. However, the key thing investors need to watch out for is if these growing legal fees become a priority over business performance.
Meta's Latest Earnings Show a Business Is Booming
Meta delivered a strong third quarter, with revenue and adjusted earnings beating Wall Street expectations.
Revenue climbed 26% year-over-year (YoY) to $64.6 billion, topping analysts’ consensus estimate of $63.37 billion. Advertising remained the company’s biggest growth engine, with sales rising 26% to $63.1 billion.
However, profit was hit due to some ongoing legal issues. Adjusted earnings per share came in at $7.40, well above the $5.75 analysts had expected. However, Meta reported net income of $9.9 billion after recording a $9.9 billion legal settlement charge.
The bigger concern was cash flow. Free cash flow turned negative at $2.1 billion, marking Meta’s first negative quarterly reading since its 2012 IPO. Capital expenditures jumped 80% to nearly $35 billion, and management raised the lower end of its full-year spending outlook, now expecting capital expenditures of $135 billion to $145 billion.
Meta is pouring billions into AI infrastructure, betting that the investment will fuel future growth. The company expects fourth-quarter revenue of $73 billion to $76 billion, pointing to annual growth of 22% to 27%.
For investors, it's not clear. While the advertising business is still robust, the costs of artificial intelligence and the business's faltering cash flow pose the question of how much the company will need to spend before those investments start paying off.
The Muse AI Story Is Real
Meta introduced its AI agents under the name of “Muse” in September. Muse has already been used by more than 10 million people in the U.S. and Canada. Approximately 25% of users interact with it every day. If that's the case, then Zuckerberg claims Muse will be able to earn more money per user than the entire Family of Apps.
The firm also said it'll carry out a two-for-one split of its stock using a new class of non-voting shares. The stock is to be distributed in the first of 2027. This doesn't alter the stock's true value but will result in a more attractive stock price and provide discounted liquidity for acquisitions and payroll to META stock.
Analysts See Major Upside for META Stock
Despite all of these worrying signs, Wall Street is not blinking. The consensus rating is still a solid “Strong Buy.” The 12-month average price target sits at $855.67, implying 34% upside from here.
Separately, Goldman Sachs has a “Buy” rating and raises its price target to $885. Analyst Eric Sheridan says the risk-reward skew remains positive. “We still see a positive risk/reward skew on current shares when measured against the core business operating momentum,” he wrote.
JPMorgan is even more bullish. Doug Anmuth raised his target to $940. He calls this the first quarter where Meta's “superintelligence” vision met “early product momentum.”
Morgan Stanley keeps an “Overweight” rating and an $820 target. The firm calls Meta the “cleanest consumer GenAI winner.” Barclays raised its target to $880. Analyst Ross Sandler says, “Muse is off to a great start and represents a game changer for the META narrative.”
Meta trades at a forward P/E of 19 based on 2027 estimates. The sector median is closer to 28. That looks cheap for a company growing revenue north of 20%. The legal bill is huge. The AI spending is huge. But the core ad machine is still humming.
From my perspective, Investors with a long horizon should see this dip as an opportunity, not a trap.
www.barchart.com On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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