Meta’s Pain May Be Your Gain: Is This a Rare Buying Window?

Key Points

• Meta Platforms has taken a beating since the firm released its Q3 2025 earnings.
• Are the concerns around Meta's AI spending overblown? History suggests that this may be the case.
• Meta now trades at a lower valuation multiple than every other Magnificent Seven stock and at a significant discount to the tech sector.

Shares of the Magnificent Seven social media giant Meta Platforms NASDAQ: META have come under intense pressure lately.

Shares fell by over 11% after the company released its Q3 2025 earnings report. Selling has not let up. Through the Nov. 13 close, shares are down 19% since the company reported Q3 results on Oct. 29.

The market’s core concern with Meta centers on the durability of its ad growth and rising AI-related expenses. But at current levels, the risk-reward profile appears tilted to the upside.

Meta’s AI Investments Are Creating Impressive Advertising Results

It is well known that artificial intelligence (AI) is the central pillar of Meta’s overall strategy. The firm wants to use AI to drive better content recommendation and improved targeting in its social media advertising segment. Developing large language models (LLMs) is also key to the firm’s Reality Labs segment as it works to make AI glasses the computing platform of the future. On the first front, AI seems to be doing exactly what Meta wants. Advertising revenue growth has accelerated every quarter during 2025. User engagement is up on Facebook and Instagram, and advertisers keep spending more money per ad.

In Reality Labs, AI investments have not yet translated into consistent revenue growth or a decline in operating losses. However, Meta’s AI hardware continues to gain increased functionality. Meta is also making AI glasses with the world's largest eyewear company, EssilorLuxottica OTCMKTS: ESLOF, the owner of Ray-Ban and Oakley. Meta gains strong brand recognition and manufacturing expertise through this partnership. This creates strong potential for AI glasses revenue to grow in the coming years.

Despite AI Spending Fears, Meta Consistently Creates Value

However, these strategic initiatives come with substantial costs, particularly in AI infrastructure. While Meta’s advertising revenue remains strong, the main reason for the stock’s decline is its updated CapEx forecast. Spending is expected to exceed $100 billion in 2026, well above the estimated $71 billion for 2025. This is likely to put significant downward pressure on Meta’s free cash generation next year. Since expected cash flows are a primary valuation driver for the stock, the prospect of a sharp decline is unsettling.

The key question for investors is whether Meta can stage a strong rebound after 2026 and sustain solid growth over the following years. Historical performance suggests it can—especially relative to current valuation.

As of the Nov. 13 close, Meta was trading around $610. To justify that price, the company would need to grow its cash flows by about 15% annually over the next decade. Over the past 10 years, Meta has delivered nearly 25% annualized growth in this metric. That rate would have to fall sharply for today’s valuation to look fully priced in. While that’s possible, a return to historical growth patterns would imply considerable upside—one reason the risk-reward setup appears tilted in investors’ favor.

Meta’s Forward P/E Offers a Discount to Mag 7, Tech, and the S&P 500

Meta is also flashing signs of undervaluation on several other fronts. For example, among the Magnificent Seven stocks, Meta’s forward price-to-earnings (P/E) multiple of just over 20x is by far the lowest. Alphabet NASDAQ: GOOGL holds the next lowest forward P/E within the group at over 26x, considerably higher than Meta’s multiple.

On Nov. 12, the S&P 500 tech sector’s forward P/E was just under 30x, around 45% higher than Meta’s multiple. Meta even trades below the approximately 23x forward P/E of the overall S&P 500. The company’s depressed valuation multiple compared to these assets provides further evidence that its potential skews to the upside.

Lastly, price targets from Wall Street analysts remain well above Meta’s current price. The MarketBeat consensus target of nearly $828 implies around 36% upside potential. Among analysts who issued price targets after the company’s earnings release, the average moves up to $857. This suggests shares could rise by 40%.

Overall, Meta’s increased AI spending is certainly a reason for concern. However, these investments are also leading to higher revenue growth, and Meta has a history of generating strong FCF. Given the stock’s valuation, there is a solid chance that Meta can outperform market expectations, leading to a favorable risk-reward profile.