Meta Stock Is Down 18% From Its High — Here’s What Investors Are Getting Wrong About That Drop
Meta stock had an odd year, and November is off to a similar start. As of Monday, the shares are trading at about $615, down about 1.5% for the day and roughly 18% from their October peak a few weeks ago. That kind of pullback raises a legitimate question for a company with a $1.6 trillion market capitalization and 26% revenue growth: is the market overcorrecting or is it responding to something genuine?
Depending on how you interpreted it, the Q3 earnings report that set off the slide was either confusing or actually worrisome. Revenue was $64.6 billion, up 26% from the previous year and strong by practically all standards. However, two factors had a significant impact on the numbers. The first was a $9.89 billion settlement with state attorneys general in the United States regarding allegations regarding the impact of Meta’s platforms on the mental health of teenagers.
The headline profit figure appeared worse than the underlying business performance would indicate due to that charge alone, which drastically reduced earnings. The second was capital expenditures, which investors have been keeping an eye on for months. For 2026, Meta has recommended spending between $135 billion and $145 billion on AI infrastructure. The cash flow statement is beginning to reflect that startling figure. In Q3, the company’s free cash flow went negative, meaning it now spends more money than it makes. Meta announced plans to dilute current shareholders by issuing $95 billion worth of new shares in order to close that gap. The stock has since reflected the market’s negative reaction to that choice.
It’s worth taking a step back and examining what Meta is really purchasing with all of that AI investment. For the first time in years, the ad industry—which powers everything—grew more quickly than Google’s. In Q3, Meta’s advertising revenue increased by 26% to $63.1 billion. At $63.4 billion, Google’s search advertising revenue was almost unchanged but only increased by 12%. Meta’s biggest advantage over Google since 2021 is that 14 percentage points, and it wasn’t an accident. Meta’s platforms are now measurably more effective at turning impressions into results for advertisers thanks to AI-powered ad targeting and delivery. Google, on the other hand, is in the peculiar position of witnessing AI reduce the value of the conventional search query, which has been its main offering for twenty years.
The investment community believes Meta is winning the race for AI advertising in the near future. However, spending at a rate that makes the quarterly figures seem uncomfortable is necessary to win that race, and that is the current tension. With a fair value estimate of $850 per share, Morningstar has given the stock a four-star rating, indicating that the current price is significantly undervalued. For a business expanding at this rate, the forward valuation is objectively modest at about 17.5 times projected earnings for the following year. The market may be undervaluing Meta’s long-term return on its AI investment while penalizing it for short-term cash flow constraints. Big tech companies have experienced this in the past. For example, Amazon reported low profits for years while developing AWS, but investors who persevered were eventually rewarded in ways that made their patience seem clear in retrospect.
The larger picture is revealed by the 52-week range: Meta recently reached $520 and peaked at almost $780. It’s not a catastrophe that the current price is in the middle of that range. However, it’s also uncomfortable, particularly for investors who purchased close to the highs anticipating that the September momentum would continue. When the Meta Muse AI rollout began, there was genuine excitement about how Apple-style ecosystem loyalty might apply to Meta’s platforms. The October rally benefited from that enthusiasm. The ensuing events served as a reminder that product enthusiasm and financial reality don’t always coincide.
Depending on how much weight an investor places on the next two quarters compared to the next two years, Meta stock may or may not be a good investment at this time. The current discount appears to be an overreaction if the spending is going somewhere real, as the growth in ad revenue suggests. The upcoming quarters could be difficult if the AI buildout takes longer than Zuckerberg’s team anticipates. That doubt is genuine. It is still unresolved.
