Investors are watching with bated breath as the tech behemoth places an enormous bet that’s causing significant market unease. While Meta’s advertising operations continue to perform strongly, Mark Zuckerberg is staking the company’s future on artificial intelligence, drawing uncomfortable comparisons to the costly Metaverse investments that previously eroded shareholder value.
Strong Fundamentals Amid Spending Concerns
Meta’s core business metrics remain impressive despite the market’s apprehension about its spending direction. The company reported $51.24 billion in third-quarter revenue, representing a 26 percent year-over-year increase. User engagement continues to grow, with daily active users across Meta’s app portfolio climbing to 3.54 billion, an 8 percent improvement.
The advertising division demonstrates particular strength, showing a 14 percent increase in ad impressions coupled with a 10 percent rise in average ad prices. The company’s return on capital stands at a respectable 25 percent, notably higher than during the peak Metaverse investment period. Market projections indicate a 21 percent revenue growth for full-year 2025, with earnings expected to expand by over 25 percent in 2026.
Massive AI Investment Shakes Investor Confidence
What’s causing significant concern among shareholders is Meta’s aggressive push into artificial intelligence infrastructure. The company plans to invest up to $72 billion in AI during 2025, with Zuckerberg indicating “substantially higher” expenditures for 2026.
Capital expenditures skyrocketed by 110.5 percent in the recent quarter, with nearly 38 percent of total revenue now being channeled into AI initiatives. This substantial spending commitment triggered a 17 percent stock decline within just four trading sessions, erasing a staggering $307 billion in market valuation.
Should investors sell immediately? Or is it worth buying Meta?
Echoes of Metaverse Missteps
Market analysts are drawing troubling parallels to the expensive Metaverse venture of 2021-2022, which previously caused Meta’s stock to plummet by 77 percent. Jason Helfstein of Oppenheimer downgraded the company’s shares, cautioning that “the massive investments in superintelligence despite unclear revenue potential strongly resemble the Metaverse spending pattern.”
The fundamental challenge lies in Meta’s business structure. Unlike competitors Microsoft, Amazon, or Alphabet, Meta lacks a profitable cloud computing division to help monetize its AI investments. The company remains heavily dependent on advertising revenue, while rivals have successfully developed additional revenue streams.
Valuation Presents Compelling Opportunity
The recent selloff has positioned Meta as the most affordable member of the “Magnificent Seven” tech stocks. Shares currently trade at approximately 19 times expected earnings—below the 10-year average and more attractive than the S&P 500’s price-to-earnings ratio of 23.
Some market experts view the pullback as a buying opportunity. David Katz of Matrix Asset Advisors describes the selling pressure as “perplexing,” pointing to the “much clearer roadmap for leveraging AI to gain competitive advantages and improve profitability” compared to the earlier Metaverse investments.
The critical question remains whether Zuckerberg can demonstrate that his multi-billion dollar AI strategy represents more than just another expensive experiment—and finally exorcise the ghost of Metaverse disappointments.
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