Meta Platforms META shares have dropped 10.3% in a month, underperforming the broader Zacks Computer & Technology sector’s appreciation of 7%. Over the same timeframe, META shares have lagged close peers, including Alphabet GOOGL, Amazon AMZN and Microsoft MSFT. While Microsoft shares have dropped 2.7%, Alphabet and Amazon returned 14.7% and 3.8%, respectively.
Meta Platforms has been suffering from investor skepticism over its massive AI-related spending, while the financial payoff remains uncertain. Regulatory risks, slowing user growth, and continuing losses in Reality Labs are major headwinds for META. However, Meta Platforms’ strong core advertising business, expanding AI push across its various platforms, growth in WhatsApp and Business Messaging, and rapid adoption of AI advertising tools hold promise. So, what should investors do with META stock right now? Let’s find out.
META Stock’s Price Performance
Image Source: Zacks Investment Research
META’s High Capex, Stretched Valuation Spooks Investors
Meta Platforms is spending heavily on expanding AI infrastructure, which is expected to squeeze free cash flow. META now expects 2026 capital spending between $125 billion and $145 billion, higher than the previous range of $115 to $135 billion. Aggressive spending with 2026 operating expenses projected between $162-$169 billion is expected to hurt earnings prospects in the near term.
META, along with Amazon, Alphabet and Microsoft, is spending heavily on building AI infrastructure. For 2026, Alphabet now expects to spend capital expenditures between $180 billion and $190 billion (up from previous guidance of $175 billion and $185 billion), reflecting heightened demand for AI compute and incremental investment tied to the Wiz acquisition. Microsoft expects to invest roughly $190 billion in capital expenditures for fiscal 2026.
Accelerating capex, along with stiff competition in the ad market and a stretched valuation, are headwinds for investors. META shares are overvalued, as suggested by the Value Score of C. In terms of the forward 12-month price/sales (P/S), META is trading at 5.62X, a premium compared with the Zacks Internet Software industry’s 3.72X and Amazon’s 3.29X.
META Stock’s Valuation
Image Source: Zacks Investment Research
META’s AI Integration Boosts User & Advertiser Engagements
META’s focus on integrating AI into its platforms — Facebook, WhatsApp, Instagram, Messenger and Threads — is driving user as well as advertising engagements. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.56 billion daily users. Meta Platforms continues to see strong engagement trends with Instagram Reels, where watch time increased by 10% and Facebook video time increased by 8% globally in the first quarter of 2026. AI-translated videos are now watched weekly by more than 500 million users on Facebook and Instagram. Threads continue to grow with over 150 million daily active users.
META benefits from strong growth in WhatsApp and Business Messaging. WhatsApp paid messaging and subscriptions revenue grew strongly in the first quarter of 2026. Business AI conversations reached 10 million weekly conversations, up from 1 million earlier in the year. Ads in WhatsApp Status are now viewed by hundreds of millions daily.
Meta Platforms’ generative AI advertising tools are gaining strong traction, with more than 8 million advertisers using at least one GenAI ad creative tool in the first quarter of 2026. Video generation tools improved conversion rates by over 3% while adoption among small and medium businesses has been particularly strong.
META’s View Reflects Strong Sales Growth, Earnings Decline
For second-quarter 2026, Meta Platforms expects total revenues between $58 billion and $61 billion. The Zacks Consensus Estimate for second-quarter 2026 revenues is currently pegged at $60.13 billion, suggesting 26.6% growth from the figure reported in the year-ago quarter.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
The consensus mark for second-quarter 2026 earnings is currently pegged at $7.11 per share, down 0.8% over the past 30 days. The figure suggests 0.42% decline from the figure reported in the year-ago quarter.
Conclusion
Meta Platforms is spending heavily on expanding AI infrastructure, which is expected to squeeze earnings and free cash flow. This, along with stiff competition in the ad market and a stretched valuation, is a headwind for investors.
However, Meta Platforms now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. This bodes well for investors already holding the stock.
META currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).