Why Is Everyone Selling Meta?

Ajouté : 2026-05-17

[00:00:00]For the most part, the market has been incredibly strong over the last year, and we can see that with Alphabet, which is up 144%. However, Met is down around 6%. And that gap is honestly insane when you remember both of these companies are dominant digital advertising businesses.

[00:00:19]Both are investing aggressively into AI and both are among the most important companies in the world. But right now, the market is treating them completely differently. and Alphabet's valuation has exploded higher while Meta's forward P has collapsed around 18.5 times earnings. So, the obvious question is this. Why is everyone suddenly selling Meta? Is it one of the best buying opportunities in big tech? Or is Meta cheap because Wall Street sees something very dangerous coming? Because recently, one of the biggest bare cases was summed up in one brutal headline. Meta's cheap stock is an investor trap. And in this video, I want to break down both sides properly. Not just Meta is cheap, therefore buy, but the real question is, is Meta entering a long-term decline? Or is the market mispricing one of the strongest advertising businesses on Earth? So, here's exactly how I want to structure the episode. First, we'll look at why the stock is under pressure.

[00:01:17]Second, we'll look at the huge AI spending number that investors are worried about. Third, we'll look at the bare case, including the argument that Meta is actually in a decline. Then, we'll look at the actual business numbers, users, revenue, ad pricing, margins, free cash flow, and valuation.

[00:01:32]And at the end, I'm going to give you my personal view on whether Meta under $600 is a buy, a value trap, or somewhere in between. And I think the answer is more nuanced than both the bulls and the bears want to admit. Now, at the time of the recording, Meta is trading around the $600 mark. Year to date, the stock is down 9%. This is not catastrophic in isolation, but the reason it matters is because the rest of the AI and mega cap market has been incredibly strong. If we look over the last month, you can see a lot of green, especially in big tech semiconductors. Alphabet, well, that's up 21% while Meta is down around 5% and then we look on a year-to- date perspective. And again, you can see a lot of concentration in those similar areas. And we note that Google's up 24% while Meta is down nearly 9%. So this is not just a weak market. This is meta-pecific underperformance. And what makes it more confusing is that the company's latest numbers were not bad.

[00:02:28]They were actually very strong. And we can see that Meta beat earnings per share by around 53%. Revenue came in ahead of expectations. Revenue was up 33% year-over-year. EPS up 62. So, if this was just about the reported quarter, the stock probably would not be continuing to sell off. The issue is not what Meta earned last quarter. The issue is what Meta wants to spend now over the next several years and the effect it's going to have on the company, which is getting investors worried. And to understand the immediate selloff, listen to how Bloomberg framed the reaction straight after the earnings. And it's important because it captures the exact reason the market looked past the strong revenue growth and focused almost entirely on one thing which everyone should know by now is capex.

[00:03:13]>> I think it's a combination of what you just mentioned which is that capex number going up uh by about 10 billion at least the range has shifted up about 10 billion. So which was already a very high recordbreaking range for meta to begin with. So we're talking even more uh after the first 3 months of the year.

[00:03:30]I think you combine that with what I saw in the Q2 revenue guidance which was just so so it was in line and I think usually Meta tends to deliver these you know results that kind of blow everybody out of the water and so when they're saying hey we're going to spend a lot more and we're making right about what we said or what you expected us to make.

[00:03:51]I'm just not sure if that combo really wowed people. Uh which is probably why you're seeing the stock down a little bit here.

[00:03:56]>> And that's the entire market reaction one sentence. Meta's spending more, but the near-term revenue guidance hasn't blown people away enough to make investors comfortable with all of that spending is why the stock's down. The business isn't suddenly broken.

[00:04:11]Investors are really asking how much money does Meta need to spend before we see a clear return. And this is the slide from their latest investor presentation that explains the fear.

[00:04:22]Meta's capex spending in all of 2024 was around 39 billion. That's jumped into the most recent year 25 to72.2 billion and Q1 alone in 26 was around $20 billion. Compare that to Q1 in 25 of 14 billion. This is a massive increase and it matters because investors are not just looking at earnings anymore.

[00:04:44]They're also looking at the free cash flow. And we can see in Q126 Meta generated $32.2 billion of operating cash flow. But then almost immediately 19 billion went to property and equipment purchase plus another 843 million on finance lease principal payments. So free cash flow came in to around 12.4 billion. It's still a huge number but the important thing here is the trend. The trend is what really matters. When CAX keeps rising, free cash flow gets squeezed and the market's fear is that Meta is going to take this incredible cash machine and pour more and more of that cash into AI infrastructure before investors know what the payback period actually is.

[00:05:28]That's the bare case. It's not that Meta can't afford to spend. It's that the spend is becoming so large that investors are asking, is this disciplined investment or is this another metaverse style capital allocation mistake? And this next clip is important because it gets to the deeper issue. It's not enough for Meta to say AI is helping our ads. Investors want to know whether Meta can create entirely new revenue streams from AI, especially because unlike Amazon, Microsoft and Google, Meta does not have a cloud business.

[00:05:57]>> I mean to be very honest, they have to because this is the only way they can showcase the monetization of the capex that's going in. So far, that was coming from the acceleration of the top uh top line. But if today's guidance is very much in line with what street was expecting and on top of that they are going to spend more then people want to know where is the ROI of that because clearly we can see the ROI when it comes to Google we can also see that in the case of Amazon web services and then now a little bit from Microsoft as well but the big question is how are you going to show it meta um if you don't have a cloud business >> that's the real comparison problem Amazon spends on AI but it has AWS Microsoft spends on AI but it has Azour, GitHub, Copilot, Office and Enterprise Software. Google spends on AI. It has Google Cloud Search, YouTube, Gemini, and TPUs. Meta spends on AI. And the question is where exactly does the direct revenue come from? Is it better ads, more engagement, and AI assistance, smart glasses, WhatsApp monetization, maybe all of those. Then investors are basically saying just show us. And look, to be fair, this is not just a meta problem. The entire industry is in a historic AI infrastructure arms race.

[00:07:06]The chart shows US hyperscala capex plans. 2018 Amazon, Google, Meta, and Microsoft combined was spending around 66 billion. By 2025, it rose to 376. And for 2026, the estimate is around 715 billion. That's staggering. Amazon around 200 billion, Google around 190, Meta 135, Microsoft 190. So this is not a small experiment. This is one of the biggest corporate investment cycles that we have ever seen. But here's the key difference. For Meta, the risk feels more concentrated because almost the entire business still depends on advertising. And that is why Wall Street is cutting price targets even though the actual numbers are strong. We can see after earnings, Guggenheim cut his price target to $800 on higher expenses.

[00:07:55]Stifle, they also cut price target to $780 on CAVEX concerns. And the same thing with UBS, they lowered their price target to 865 on higher costs. Now, this is important. Those price targets are still above the current share price. So, Wall Street's not saying Meta is worthless, but they're saying the upside is being reduced because the cost base is going higher. And this is exactly where the debate begins because one side says Meta is cheap because investors are overreacting. The other side says Meta is cheap because the market is finally waking up to the risk. And the Wall Street Journal article is probably the clearest version of the bare case. The argument is basically this. Meta looks cheap, but that cheap valuation may be a warning sign. Yes, the advertising business is booming, but beyond that, the company has several problems. First, when we take a look at it, their issue is user growth where they say it may be slowing. We can see that the user base is 3.5 billion. Although they note that the growth in the first quarter wasn't impressive. They say users grew 4% year-over-year but declined on a sequential basis. And they point the issue being that this has never happened since they reported this metric from 2019. The second the obvious one that we've been discussing is that capex is exploding. And then the third one they talk about something we also touched upon that meta unlike its big tech peers here they don't have that kind of cloud business like Microsoft, Amazon or Google. So essentially, they don't have anything to fall back on if, and this is a big if, the ad business has reached its limit. Something we're going to take a closer look at later. And it also covers a fourth point that the company has a history of huge spending cycles that do not always generate returns like the metaverse. And the final argument that they talk about, and again, something we're going to point out is that there are legal and reputational risk around social media addiction, mental health regulation, and user trust. And then you have an even more extreme version of the bare case that Meta is entering its zombie era. Now, this isn't something I fully agree with in terms of the framing. But as an investor, you should not ignore it because sometimes the best investment opportunities happen when the market becomes too pessimistic. But sometimes the market is pessimistic for a reason.

[00:10:11]So, we're going to go ahead and test the bare case. Later on in the episode, I also want to reflect on a very similar situation that we covered on this channel when Google was at its lowest in terms of sentiment and that worked out very well. So the first bare argument is user growth. Meta reported 3.56 billion family daily active people in Q126. This was down 3.58 in Q425 and bears are saying this is the first sign that Meta's user base is reaching saturation.

[00:10:42]Now to be fair, it's not a crazy concern. When a company already reaches over three and a half billion people per day, there are only so many new users left to add. But there are two important counterpoints. First, Meta itself said the slight sequential decline was driven by internet disruptions in Iran and restricted access to WhatsApp in Russia.

[00:11:02]And second, even after that decline, Meta still has around 3.56 billion daily active people. That is almost impossible scale. So the question is not can Meta add another billion users quickly. The question is can Meta monetize the existing user base better and that is where the numbers are much more interesting because we can see in Q124 Meta generated $1120 per person in Q126 that's now sitting at 1566. So even if user growth slows, Meta is still generating more revenue per user. And it matters because mature platform companies often grow not just by adding more users, but by increasing monetization per user. And in Q126, average price paid per ad that was up 12% worldwide. If we look specifically US and Canada, that was up even higher, 14%. in Europe even higher sitting at 19 and rest of the world at the 18% point.

[00:12:01]It tells us advertisers are still paying more and that ad impressions were also up 19% worldwide in Q126. So Meta is not just raising prices, they're delivering more ads. And it's powerful, but it also does create risk because at some point if you keep showing more ads and charging more, you do risk hurting the user experience and that's exactly what some bears are worried about. Now, the next clip that we're about to go on to is important because it highlights the non-financial risk when we analyze stocks on the channel is very easy to focus on revenue margins and valuation.

[00:12:35]But for Meta, legal and reputational risk has always been a part of the story. And Bloomberg laid out why this could become a multi-year issue that if they keep losing these trials, they lost sort of the main addiction trial that we covered very closely uh in California earlier this year. It was a small payout by meta standards. It's a couple million dollars, but there are thousands of those cases coming against the company.

[00:13:00]And you know, if they start to lose the second, the third, the fourth, you start to add those up and and extrapolate that out, it can be a financial thing. But there's also reputational damage here.

[00:13:11]And when you're constantly in the news because your products are being accused of being addicting or bad for mental health or bad for teens, you can imagine that is not the best, you know, type of narrative that Meta wants when they are an advertising business, right? Do do brands ever shy away? Will they ever shy away from these products? Now, this is not my main reason for owning or not owning the stock, but it is a real risk if Meta becomes a company constantly associated with addiction lawsuits, teen mental health concerns, privacy issues, and regulatory pressure that could affect the multiple investors are willing to pay. Not necessarily the business tomorrow, but the valuation over time. So, the bare case is not stupid. The bare case is the core business is huge, but growth may slow.

[00:13:56]The company is spending aggressively, legal risk is rising, and management control is concentrated around one person, Mark Zuckerberg. And that brings us to the real test. Are the fundamentals strong enough to justify the risk? Now, let's look at the actual business. In Q126, Meta generated 56.3 billion in revenue. Family of apps itself was 55.9. Advertising revenue alone was 55 billion. and Realy Labs was only 402 million. So this is still overwhelmingly an advertising company, but the advertising company is phenomenal. And revenue was also up across every major geography versus Q125. US and Canada went from 18.6 billion to 24.1. Europe went from 9.7 to 13.5. Asia-Pacific 8.4 to 10.9. Rest of the world from 5.6 to 7.8. and advertising revenue followed the same pattern. This is not a business where one region is carrying everything. The strength is broad and this is why I struggle with the idea that Meta is dying. A dying company does not typically grow revenue at 33% year-over-year with more than 3 12 billion daily active users. But that doesn't mean the stock is automatically a buy because stocks are priced on future cash flows, not just their current dominance. And this chart is really important. It compares the big advertising giants. Amazon advertising revenue has grown massively. Google search and others remain enormous.

[00:15:26]YouTube continues to grow. But Meta's advertising revenue has gone from around 102 billion to around 210 on a trailing 12-month basis. That is more than a double. And when you compare Google search and other revenue against Meta family of apps revenue, Meta is not a small declining platform. Google search and other is around 234 billion. Meta family of apps is around 213 billion.

[00:15:50]The gap is not that huge anymore and this is where the market disconnect becomes really interesting because Alphabet's multiple has expanded massively. Meta's multiples contracted.

[00:16:01]Now maybe Alphabet deserves the premium because it has Google Cloud, Gemini Search, YouTube, and a clearer AI monetization path. But a gap this big definitely deserves attention because Meta's core advertising business is still very, very strong. And this next clip is one of the best bullish counterpoints because it directly challenges the idea that Meta's AI spending has no payoff. The argument is that AI is already improving Meta's ad business today.

[00:16:27]>> Uh even though Meta is investing more in capex, they're still in a great place.

[00:16:31]And I would put Meta and Google as the two companies that are at scale most benefiting from AI. talked about that increase in revenue growth, but you also have a lot of opportunities and they mentioned on the call this use of more advanced models, large larger uh trillion parameter models uh for advertising for the first time. they're using smaller models today, but they're starting to test more and that they're seeing engagement uh with more AI powered is increasing quarter over quarter, which is as they continue to sprinkle that on across their products that should yield more revenue growth or revenue growth sustaining at a higher level. And so, uh, I think that the the the sense of this is that investors are really, I think, missing the point. And ultimately, it's up to investors to decide what the stock does. Uh, but I believe that they will be uh, rewarded for this girl. That was the bullcase in one clip. AI is not just some future dream for Meta. It's already making the ad engine better. more relevant recommendations, better targeting, higher engagement, higher ad conversion, more impressions, higher prices. And if that continues, then the AI spend may be much more rational than the market thinks. And then let's look at quality.

[00:17:49]Meta has an A+ on the profitability grade. Gross margin 82%, EBIT DAR margin sitting at 51%, bottom line net income 33, return on equity 33%, return on total capital sitting at 20%. These are what we would call elite numbers. And operating margin is around 41% which is dramatically above the 12% benchmark.

[00:18:10]Free cash flow margin is still around 23% despite all of their spending. And return on equity 33%, ROIC 21%. Again, these are not dying business numbers.

[00:18:22]These are worldclass business numbers.

[00:18:24]But here's the tension. The business is elite. The spending is also elite. And investors here are trying to decide whether one cancels out the other. And one reason investors are nervous is because Meta has already burned huge amounts of money on projects outside the quad business. Realy Labs, well, in the most recent quarter, we can see they lost just over 4 billion. If we go to Q4, just the previous one, they lost over 6 billion. And over time, this has added up to tens of billions of dollars.

[00:18:53]Now, to be fair, not all of this is necessarily wasted. Smart glasses could become a meaningful product category.

[00:18:59]Meta's partnership with Raybands gained attention and if AI glasses eventually become a real computing platform. Meta could be in a strong position but the issue is that investors have heard this before. They heard it with the metaverse. They heard it with VR. They heard it with headsets. So when Meta says trust us, the spending will create the next platform. The market says maybe but prove it. And that is why the stock is cheap. Now not everyone is bearish.

[00:19:23]Dan Ivers has been one of the biggest tech bulls on Wall Street. And in this clip, he gives a very simple view on where he thinks new money should go in the AI trade.

[00:19:32]>> You want to put money in Google in Microsoft.

[00:19:38]I believe Meta is way oversold here. And of course, Nvidia.

[00:19:43]>> That's the bullish view. In its simplest form, Meta has been punished too much and valuation supports the argument.

[00:19:49]Meta's forward P is around 18.4 compared to a 5year of 22.6. That does not make it automatically cheap, but it does mean the stock is trading below its own historical norm at a time when the business is still growing revenue strongly. And you can also notice when we look at the blue tunnel highlighting the intrinsic fair price, the fundamentals have been increasing even more so after the most recent earnings.

[00:20:13]But the stock price is going the other way creating that disconnect and that is what we would call an undervalued region. Look, over the last 5 years though, and over the last 10 years, one thing is clear. It's very common for Meta to be trading in an undervalued level. Investors, for whatever reason, aren't willing to pay the premium that we've seen from the likes of Google in the more recent period. And the chart here shows Meta's forward P over time.

[00:20:38]The average sits at 23.3 when we go all the way back to 2017. Today, it's closer to 18.5. So, the market is already applying a discount. And then on seeking alpha data, the 2026 forward P sits around 18.8. 2027 estimate of forward P comes down to 16.7. 28 down to 14.6. And based on 2029 earnings estimates, well, it's trading around 12. Now estimates, they can be wrong, especially when Cabix and depreciation are moving quickly. But if Meta can actually deliver those earning estimates, the stock doesn't look expensive here. And we can see that Wall Street's average price target at $827 implies today there's around 37% upside.

[00:21:21]The low target sitting at $614, the high target just over the $1,000 mark. So even after the target cuts, Wall Street is still broadly above the current share price. And in my DCF model, using a medium case growth rate, I get an intrinsic price of $824 against a current share price around $600. It implies a margin of safety day at 27%. But the key assumptions here are important. I'm using a growth rate of 12%. The sensitivity table gives a low rate here 10% growth coming to a price of $752.

[00:21:56]The higher rate of 14% $92 indicating 50% upside. So even my low case that's above the current price. But again very important to reiterate that a DCF is not a fact. It's a framework. And with Meta, the biggest uncertainty is not whether the current business is strong, it's whether future AI spending permanently reduces free cash flow. And that's why the reverse DCF is useful. At the current share price around $600, the market seems to be pricing in 5.1% growth based on the current model. Now, it's not a high hurdle for a business that grew topline over 30%. But again, question is free cash flow. If revenue grows fast but capex grows even faster, shareholders may not fully benefit. So the entire meta thesis comes down to one question. Does AI spending convert into durable revenue growth and higher cash flow later? If yes, the stock is probably cheap. If no, the cheap valuation could definitely look like a trap. And this is where the Google comparison becomes interesting. When Alphabet was out of favor, the bare case was everywhere. People said Google search was old. People said young people were moving to Tik Tok. People said AI answer engines would destroy search.

[00:23:09]People said Google's core business was under siege. And some of those risks were real. But what ended up happening?

[00:23:15]Google then rerated massively. And now Meta is the one being treated like the ugly duckling. This doesn't prove Meta will rerate, but it does show how quickly sentiment can change when the market decides that the AI threat is actually an AI opportunity. Alphabet, Gemini, and Cloud change the narrative.

[00:23:33]For Meta, the market still needs to believe that AI improves ads, powers new products, and creates new monetization streams. This clip helps frame the broader market context because the big question is whether Meta is overspending into a bubble or whether this really is the early stage of a new industry. We are rapidly building out a entire new industry >> and the fascinating part of it is the user engagement of it is at the very initial stages. So over the weekend I was challenged by someone regarding my bullishness surrounding the momentum factor in the AI universe and my response to the individual was well are you using Gemini chat GPT or Claude and they said why would I use any of those?

[00:24:21]Case made.

[00:24:22]>> So I think what's happening now is enterprise and the consumer are finally recognizing the value in these tools. I believe the true value is in Claude, but Gemini is phenomenal as well. And the the the beginning stages of the usage I think is going to rapidly advance the growth of this industry. And this is why Meta's AI assistant matters. If Meta's AI can actually become a consumer product with growing engagement, then the spend is not just about defending ads, it could become a new layer across Facebook, Instagram, WhatsApp, Messenger, glasses, and potentially a gentic AI. And that's why this FT headline matters. Meta is not just building AI models for fun. It's trying to build an assistant that can sit across the consumer ecosystem. Question is whether users actually adopt it and whether Meta can monetize it. And another thing worth noting is that Meta is still widely owned by major investors. In this super investor screen, we can note Meta appears in 26 portfolios. It's not the most owned Mega Cap, but it's still very clear on their radar. And then we take a look at the most recent buys in the two previous quarters. You can see here Meta in third place with 15 buys reported so far.

[00:25:35]Again, doesn't mean you should blindly copy anyone, but it tells us that some serious investors still see value here.

[00:25:41]And then we look at members of Congress.

[00:25:43]There's also been some political training activity in Meta with multiple buys and sells. But obviously, I wouldn't base an investment thesis on this. It's just an interesting context because Meta remains one of the most watched stocks in the market. The real decision still comes back to fundamentals as well as valuation. So, let's summarize the bull case and the bare case. The bull case is simple. Meta has over 3 and a half billion daily active people. Revenues growing over 30%. The ad business is still incredibly strong. Average revenue per person is rising. Ad impressions are growing.

[00:26:16]Average price per ad is growing. Margins are elite. ROIC is strong. The stock trades below its historical average multiple. And if AI improves recommendations, engagements, ad tools, conversion, and eventually powers new products, then the current capex could look smart in hindsight. The bare case is also simple. User growth may be reaching saturation. Meta is heavily dependent on advertising. Capex is exploding. Realy lab has already burned tens of billions. Free cash flow could be pressured. Meta does not have a cloud business to monetize AI like Amazon, Microsoft or Google. Legal and reputational risk arising and Zuckerberg has enormous control over capital allocation. So the debate not is Meta good business. Obviously it is. The debate here is can Meta remain a great investment while spending this aggressively. So here's my conclusion.

[00:27:06]At around $600, I do think Meta looks attractive. My DCF suggests fair value of $824.

[00:27:13]Wall Street's average price anywhere in the low 800s. The forward P is below historical norms and the business quality is still exceptional. So, from a pure valuation perspective, I do think Meta under 600 offers a reasonable margin of safety. But I would not call this a risk-free screaming buy because the market's not stupid. The market is discounting Meta for a reason and the reason is the uncertainty around AI capex free cash flow and whether Meta can create enough monetization to justify the spending. So for me, Meta is not a blind buy. It's a stock where I'd be happy to own or add gradually under 600. But I also want to monitor three things very closely. Number one would be does the revenue growth stay strong?

[00:27:57]Number two would be does free cash flow recover as capex normalizes. And number three, does Meta prove AI monetization beyond just better ads? If those three things happen, I think the stock can rerate meaningfully. If they don't, then the cheap stock is a track argument becomes much more dangerous. And the reason this setup is interesting is because Meta is now in the uncomfortable zone where the stock looks cheap. The business looks strong, but the market no longer fully trusts the spending plan.

[00:28:24]And historically, those moments can create the best opportunities, but they can also create value traps. So, I don't think the right question is, is Meta cheap? It is. The better question is, is Meta cheap enough to compensate investors for the AI spending risk? And at under $600, my answer is yes, but only if you believe Zuckerberg is building the next layer of Meta's business, not repeating the Metaverse mistake. That is the line the investment now sits on. And that is why everyone is selling Meta. Not because the business is broken, but because investors are no longer sure how much cash it will take to protect the future. As always, let me know your thoughts in the comments. If you enjoyed today's episode, smash that like button, hit the subscribe and bell button to be notified for future videos.

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