Meta Stock Price Looks Cheap — But Wall Street Says That’s the Trap

At the core of Meta Platforms at the moment is an odd contradiction. Even though the company is printing money—last quarter’s revenue was $56.31 billion, up 33% year over year and the strongest growth since 2021—the stock continues to move in the wrong direction. It ended Monday’s trading session at 610.46, significantly lower than its August 52-week high of 796.25. It’s difficult to determine why investors who were keen to pile in last summer are now second-guessing themselves.

The numbers themselves are outstanding. 10.44 earnings per share as opposed to the anticipated 6.67. a nearly 33% net margin. About 37% is the return on equity. This is a business operating at the top of its game by practically every conventional measure. Nevertheless, the stock is trading at its lowest multiple in three years, at about eighteen times forward earnings. Meta’s valuation has been framed as a “bargain-bin price” that serves more as a warning than an opportunity, according to a recent Wall Street Journal article.

One factor accounts for the majority of the unease: capital expenditures. According to reports, Meta is organizing a $13 billion financing package for a new AI data center complex outside of El Paso, Texas, with Morgan Stanley and JPMorgan at the forefront. It’s the most recent in a series of expenditures that have left even sympathetic analysts unsure of the precise moment when the spending will end. Last month, Truist maintained a Buy rating while reducing its price target from 900 to 840. Mizuho reduced the number from 850 to 835. There is still a vote of confidence. Less so was the conviction.

It’s difficult to avoid thinking back to 2022’s metaverse era, when Zuckerberg reoriented the company’s identity around an immersive computing future that hasn’t truly materialized three years later. Tens of billions have been lost by Reality Labs. Some investors worry that AI infrastructure will develop similarly, with significant upfront costs, an ambiguous timeline, and outcomes that might or might not be worth the investment. Similar doubts were raised about Tesla’s factory build-outs. The distinction is that Tesla had a physical product that was being produced. It’s more difficult to envision Meta’s AI returns.

There are also more sinister headlines. The state of New Mexico is pursuing significant fines and platform modifications in its ongoing youth-safety trial against the company. Reuters recently won a Pulitzer Prize for exposing claims that Meta intentionally exposed users, including children, to dangerous AI chatbots and made money off of deceptive advertisements. An inquiry into the board’s oversight procedures has been launched by a shareholder firm. The business model is not threatened by any of these factors alone. When stacked together, they wear down sentiment in ways that are visible in the multiple but not in the earnings line.

However, the advertising engine is still very powerful. AI-powered ad pricing has increased revenue by about 33%; this is not a rounding error. Over 166,000 shares have been moved by executives in the last three months, most of them under prearranged plans, making insider selling noteworthy. However, institutional buying has continued underneath. In the fourth quarter, Kerusso Capital increased its stake by 25%. The pattern appears to be a quiet reorganization of conviction rather than a stampede out.

As this develops, it seems as though Meta has turned into a sort of Rorschach test for investors’ perceptions of the AI era. The stock at 610 appears almost reckless in its cheapness if you think the expenditure pays off. The discount is beginning to make strange sense if you don’t. It’s possible that both points of view are partially correct and that, as usual, the truth won’t be apparent until it is.