After a significant surge last week driven by better-than-expected fourth-quarter earnings, the stock price of social media giant Meta Platforms has now given back all those gains. As of the time of writing, its stock price has fallen approximately 10% compared to its closing price on January 29th (the first trading day after the earnings release).
This stock decline coincides with a broader market pullback, with many software and artificial intelligence-focused companies facing selling pressure. During this period, the tech-heavy Nasdaq Composite Index fell about 3.5%. With the stock price retreating to pre-earnings levels, are investors being presented with a second chance to buy?
Meta’s robust fourth-quarter performance made the market’s positive reaction unsurprising. Its revenue grew 24% year-over-year to $59.9 billion, significantly exceeding the analyst consensus of $58.5 billion; earnings per share were $8.88, also notably higher than market forecasts.
The company’s core platform ecosystem remains healthy: daily active users across all platforms increased 7% year-over-year to 3.58 billion, and growth in user engagement and scale drove a 18% year-over-year increase in ad impressions in the fourth quarter. Management’s outlook indicates continued growth momentum, with the midpoint of first-quarter revenue guidance suggesting a year-over-year growth rate of 30%. Even after excluding an approximate 4% positive impact from foreign exchange rates, growth would still reach 26%, representing a further acceleration from the fourth quarter.
Despite the impressive revenue growth, it comes with significant investment costs. Part of the business acceleration stems from Meta’s aggressive investment in artificial intelligence, and AI research and development is expensive.
Fourth-quarter costs and expenses surged 40% year-over-year, severely squeezing profit growth: the operating margin plummeted from 48% in the same period last year to 41%, and earnings per share grew only 11% year-over-year, less than half the revenue growth rate. Although management anticipates a strong start to 2026 revenue, full-year operating profit is only expected to be “slightly above” 2025 levels.
This conservative outlook reflects Meta being in a high-intensity investment cycle: 2026 capital expenditure is projected to reach $115 to $135 billion, far exceeding the approximately $72 billion in 2025; the full-year expense guidance is $162 to $169 billion, significantly higher than the approximately $118 billion in 2025. At the core of these massive expenditures is the bet on AI.
Meta Founder and CEO Mark Zuckerberg stated during the earnings call: “We are witnessing a significant acceleration in AI development, and we expect this wave to further accelerate across multiple frontiers in 2026.” To seize the AI opportunity, the company continues to invest heavily.
For long-term holders, the stock price pullback may offer an opportunity to establish or add to a position. However, investors must be clear-eyed: the massive AI investments will suppress profit margins in the short term. One must have strong trust in management’s strategic execution capabilities, and therefore, it should be viewed as a high-risk investment, with position size controlled accordingly.
At a current price-to-earnings ratio of about 28 times, the valuation partially reflects the risks the company faces, but the stock is not cheap. Investors considering buying must truly align with Zuckerberg’s strategic vision for AI. If this bold gamble does not pay off as hoped, the stock price could remain under sustained pressure.
