MW Meta's stock is the new 'Magnificent Seven' doormat. Should you buy the dip?

By Christine Ji

Shares have slumped 17% since the company signaled aggressive AI spending ahead. While some are concerned, others see a prime buying opportunity.

Meta grew revenue 26% in the third quarter, but profitability decreased as expenses climbed at a faster rate.

If there's one thing the artificial-intelligence trade has taught Big Tech investors, it's to never get too comfortable. And after the company's third-quarter earnings report, the new "Magnificent Seven" punching bag is now Meta Platforms.

Shares of Meta (META) have fallen more than 17% since last Wednesday's close, after which the company shared that it was ramping up its AI capital expenditures. But does Meta's selloff present an opportunity to buy an AI darling for cheap, or is it the start of a prolonged decline?

Michael Sansoterra, chief investment officer at Silvant Capital Management, thinks investors have overreacted. Meta reported revenue growth of 26% year over year, and had it not been for a one-time $16 billion charge on deferred tax assets, the company would have solidly beat consensus analyst estimates for earnings per share. Meta also gave fourth-quarter revenue guidance above consensus estimates.

"I think the quarter was very good," Sansoterra said of Meta's earnings. "Investors like to see a consistent earnings profile across every company, and they don't always get it."

Sansoterra sees Meta's capex plans not as a reason for concern, but rather a bullish signal; the company is spending on data centers and top AI talent, he noted. "They want to be a continued leader in AI, and they know they need to spend to do that," Sansoterra told MarketWatch. "They can turn the spigot on or off whenever they want to."

AI is having an outsize impact in the advertising space that Meta operates in, which is why Sansoterra likes that Meta is investing in maintaining its leadership. Deutsche Bank analyst Benjamin Black expressed similar sentiments in a note last week, writing that Meta's large up-front AI investment has boosted the company's advertising revenue growth, which is in turn allowing it to lean into foundational AI-model training - something that could unlock new opportunities outside of its existing ad business.

Given the "reasonable valuation" after the pullback, "it seems prudent to invest with Mark Zuckerberg's growing AI ambitions now," Black wrote.

Read: Meta's 'gravity-defying' growth means it's getting closer to this intriguing milestone

However, investors seem to be going risk-off as of late, especially given rising concerns around an AI bubble. Randy Hare, director of research at Huntington Private Bank, believes investors have put Meta in the "penalty box" because of its aggressive AI spending plans. "They want to make sure Meta isn't going to overspend on something it's not going to generate revenue from," Hare told MarketWatch.

In 2021 and 2022, Meta investors saw the company's Reality Labs division aggressively spend on its metaverse virtual-reality platform with very little return on investment. Reality Labs has since pivoted to creating wearable hardware integrated with AI, but it's still spending heavily on technology with an unclear future payoff. In the most recent quarter, Reality Labs incurred a $4.4 billion loss from operations.

Black believes investor pessimism around Meta's frontloaded AI investments is unwarranted. In previous investment cycles, Meta would launch new formats to keep up with competitors at the cost of cannibalizing its existing products. Today, Black believes Meta's investments in AI will supplement its existing advertising business instead of diverting attention away from it.

To convince impatient investors, Meta will likely need to show that it's capable of not just spending but also monetizing AI and increasing profits.

Hare believes that investors could feel more confident about the stock if Meta lowered its capex guidance or announced more share buybacks, which would mean a reversal of recent trends. In the third quarter, Meta's expenses rose faster than revenue, and the company's stock buybacks were just a third of what they were in the second quarter.

Other Big Tech companies that announced increases to their AI spending in the third quarter didn't see their stocks receive the same treatment as Meta's, which could be due to their focus on cost discipline. Both Amazon.com Inc. (AMZN) and Alphabet Inc. $(GOOGL)$ $(GOOG)$ emphasized operational efficiency on their earnings calls last week. Meanwhile, Meta's head count has risen to the highest level in nearly three years.

"I think that management at Meta understands the market better than they did with the metaverse," Hare said. "But I want to see them act, rather than give them the benefit of the doubt."

Read: Meta's new AI glasses impressed investors - but 3 things stop them from going mainstream

-Christine Ji

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November 07, 2025 07:00 ET (12:00 GMT)

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