Despite post-earnings selloff, Deep Value Investing analysts argue Meta Platforms, Inc. (META.US) remains fundamentally strong, with its $100B capital expenditure program strategically positioning the company for AI-driven growth. The stock's 15.6% drop reflects market overreaction to capex guidance and slowed buybacks, while overlooking robust 26% YoY revenue growth to $51.24B in Q3 and improving ad metrics (14% impression growth, 10% price increase).
Meta now trades at just 25.6x forward P/E - the cheapest among hyperscalers. Analysts defend its compute investments, citing multiple demand drivers: Llama model training, app ecosystem operations, and core ad services. With advertising growing above 20%, these expenditures appear justified. Notably, Meta secured $40B in third-party cloud contracts last quarter, creating potential monetization avenues for excess capacity.
The selloff stems from two primary concerns: 1. Capex intensity: Meta now spends 61% of operating cash flow ($79.6B past 3 quarters) on capex ($48.3B), significantly higher than Microsoft's 43% or Google's 44%. Management raised 2025 capex guidance to $70-72B and signaled even higher 2026 increases. 2. Buyback slowdown: After repurchasing $26.32B YTD, remaining authorization stands at $25.03B, with zero buybacks in September - suggesting potential redirection of cash toward infrastructure.
Key financial highlights: - Q4 revenue guidance of $56-59B - $44.45B cash & securities on hand - $30B multi-tranche bond offering announced - One-time $15.93B tax adjustment (87% effective rate) distorted GAAP EPS to $1.05 vs $7.25 adjusted
Analysts maintain conviction due to: 1. Advertising resilience: Pricing power persists despite rising US unemployment 2. Valuation disconnect: Trading at discount to cloud peers despite higher growth 3. Strategic positioning: AI infrastructure investments should drive long-term ecosystem value
Risks to monitor: - ROI on capex if revenue growth fails to match expenditure increases - Margin pressure from $30B debt issuance interest obligations - Macro deterioration impacting ad spend
The analyst recommends considering 6-12 month OTM calls, expecting: - Near-term consolidation around $600 - Potential retest of all-time highs within 3-6 months - Maintains "Strong Buy" rating citing attractive valuation and double-digit growth prospects