Meta Platforms (META +4.39%) stock took a big hit after its third-quarter earnings report. Despite impressive revenue growth, the company's share price dropped by over 10% in a single day, as investors are worried about its artificial intelligence (AI) spending.
This is the cheapest Meta's been in months, but does that make it a buying opportunity? Here's what prospective investors should know.
Image source: Getty Images.
Meta's core business is still strong
Meta makes most of its money from ads, and in that respect, it had a great third quarter. Revenue was up 26% year over year to $51 billion, ad impressions increased 14%, and its average price per ad increased 10%.
The social media company's AI investments also appear to be delivering positive results for its ad business. Earlier this year, CEO Mark Zuckerberg said that Meta's AI recommendation model led to "roughly 5% more ad conversions on Instagram and 3% on Facebook" and that a "meaningful percent" of ad revenue now comes from campaigns created with its generative AI features.
Meta's hefty capital expenditures on AI infrastructure are somewhat concerning, and investors are understandably having flashbacks to previous unsuccessful ventures, like the metaverse. That said, the recent dip seems like an overreaction, considering Meta's financial strength.
NASDAQ: META
Key Data Points
If you've been thinking about picking up some shares of Meta, now is a great time to do so. It's spending heavily on AI, but so are many of the top tech companies. And with the cash flow its ad business generates, Meta can certainly afford its AI investments.
