Meta Platforms (META +0.50%) tumbled 15.2% in the three days since reporting third-quarter 2025 earnings. As of market close on Nov. 3, Meta is down 1.5% in the second half of 2025 compared to a 15.9% gain in the S&P 500 and a 24.7% surge in the Nasdaq Composite.
Here's why the recent sell-off is overblown, and why Meta remains one of the best opportunities for long-term investors seeking growth stocks at reasonable valuations.
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The AI investment cycle is maturing
History doesn't repeat in the stock market, but it rhymes all the time. When presented with a new and exciting theme that could make investors rich, the market often initially reacts like Dopey from Snow White in the diamond mine. Eyes light up, and greedy vapors overtake logic. Traders gamble on stock prices rather than investing in shares of companies with long-term intentions.
During this period, companies are rewarded for throwing money at ideas that fit that theme. It's been happening with artificial intelligence (AI), quantum computing, and nuclear energy. In recent years, the same dynamic has affected electric vehicle stocks, cloud computing, software-as-a-service companies, fintech, and plenty of other themes.
Over time, skepticism counteracts euphoria, and valuations come down. The companies that can translate spending into earnings growth can become huge winners, emerging from the ashes of countless losers.
The sell-off in Meta Platforms marked a turning point in investor sentiment toward AI. The stock sold off mainly because operating expenses are outpacing revenue growth -- leading to lower operating margins. Investors prefer when a company is growing operating income faster than revenue because it means converting more sales into profit -- a sign of efficiency.
NASDAQ: META
Key Data Points
Meta can afford to swing big and sometimes miss
It's good for investors to be critical of AI spending. In fact, it's probably healthy for the market overall if companies are rewarded for strategic spending on AI rather than just throwing money at ideas and hoping it sticks. But the sell-off in Meta is overblown for a few key reasons -- the most important being that Meta can absolutely afford to bet big on bold ideas.
Despite ramping capital expenditures, Meta still exited the most recent quarter with $15.6 billion more in cash, cash equivalents, and marketable securities than long-term debt. And although operating expenses grew faster than revenue, Meta's operating margins were still impressive at 40% in the recent quarter compared to 43% in Q3 2024.
Even with higher Family of Apps (Instagram, Facebook, WhatsApp, Messenger) spending, Meta can still afford to lose billions every quarter on Reality Labs -- which includes big bets on virtual and augmented reality like Mega Quest and Ray-Ban Meta smart glasses. Similar to Q3 2024, Meta reported more than $4.4 billion in negative operating income from Reality Labs in its latest quarter. Without that loss, its margins would be even better.
If Meta cared only about its quarterly results, its operating margins would probably rival Nvidia's. But long-term investors care more about earnings growth years from now than near-term results.
AI investments are already paying off
Meta's spending is sizable, yet purposeful. Meta is building its own data centers, specifically designed to handle AI workloads. If it really wanted to cut costs, it could keep relying heavily on third-party data centers. But Meta is building out its own infrastructure for the long term.
For several years now, it has proven that its AI spending is paying off through increased engagement and content, specifically on Instagram. Higher user engagement and content creation make Instagram a more appealing destination for advertising spending.
On its third-quarter earnings call, Meta said that ad impressions grew 14% -- driven by engagement and user growth. And the average price per ad grew 10% due to higher advertiser demand and better ad performance.
Advertisers care more about generating a return on advertising spending than total viewership. To fulfill that need, Meta continues to improve its algorithm to align content feeds and advertisements with user interests. Meta specializes in positioning ads in front of potential buyers and supporting advertisers with detailed analytics -- which leads to elite conversion rates.
Meta is a great value for long-term investors
The sell-off in Meta shows that investors are demanding focused AI spending, which is healthy for the market overall. However, Meta remains one of the best long-term growth stocks to buy because it can afford to take risks on its AI spending. By improving engagement and creating AI-driven tools for advertisers, Meta is laying the groundwork for a long runway of future growth in mobile-first advertising on Instagram.
Meta has an impeccable balance sheet and high margins despite blowing billions on Reality Labs each quarter. Last week's sell-off pushed Meta's price-to-earnings ratio under 30 to 28.2 and its forward P/E down to just 24. This means that on a forward P/E basis, Meta is now the least expensive of the "Magnificent Seven" or the "Ten Titans" -- which are Meta plus Nvidia, Apple, Microsoft, Alphabet, Amazon, Broadcom, Tesla, Oracle, and Netflix.
All told, Meta stands out as a great buy for growth investors looking for a cash cow at a good value.
