When most investors talk about artificial intelligence (AI) stocks, they focus on chipmakers like Nvidia or cloud giants like Microsoft. However, plenty of other leading tech companies are using AI to improve their businesses.
One of those AI-oriented players is Meta Platforms (META 1.32%), the world's largest social networking company. It uses AI algorithms to gather data from its family of apps -- including Facebook, Instagram, Messenger, and WhatsApp -- to craft targeted ads. It also uses AI to display customized content that will likely keep its users engaged for longer periods of time. Yet Meta isn't often mentioned in the same breath as Nvidia, Microsoft, and other AI leaders.
Image source: Getty Images.
Instead, Meta's plans to ramp up its AI spending caused its stock to pull back sharply after its third-quarter earnings report came out on Oct. 29. Here's a look at why the bulls retreated -- and if Meta might still be one of the most underrated and undervalued AI stocks on the market right now.
What happened to Meta over the past few years?
Meta served an average of 3.54 billion daily active people (DAP) across its entire family of apps this September, which is up from 2.82 billion DAP in December 2021. That massive audience makes it a crucial platform for advertisers, so it comfortably holds a near-duopoly in the digital-advertising market along with Alphabet's Google across many markets. It still generates most of its revenue from its targeted ads.
In 2022, Meta's ad sales stalled out after Apple allowed its iOS users to opt out of third-party data tracking services. It faced fierce competition from ByteDance's TikTok, while the macro headwinds drove many of its advertisers to rein in their spending. Meta also ramped up its spending on its unprofitable Reality Labs segment, which develops its augmented and virtual-reality devices, and those higher expenses crushed its operating margins.
|
Metric |
2021 |
2022 |
2023 |
2024 |
2025 (9 Mo) |
|---|---|---|---|---|---|
|
Revenue growth (YOY) |
37% |
(1%) |
16% |
22% |
21% |
|
Operating margin |
40% |
25% |
35% |
42% |
41% |
|
EPS growth (YOY) |
36% |
(38%) |
73% |
60% |
(8%) |
Data source: Meta Platforms. EPS = earnings per share. YOY = year-over-year.
But in 2023 and 2024, Meta's revenue growth accelerated and operating profits expanded. Its advertising business recovered as it rolled out more AI-powered tools to gather first-party data and counter Apple's iOS changes. It also attracted more ad spending from Chinese e-commerce and gaming companies as the macro environment stabilized.
Meta expanded its Reels short-video platform to challenge TikTok and launched its own microblogging platform Threads to pull users away from X (formerly known as Twitter). Those moves widened its moat and locked in more users, while the growth of its higher-margin advertising business offset Reality Labs' losses.
In the first nine months of 2025, Meta's revenue rose, but its operating margins shrank, and its diluted earnings per share (EPS) declined. Its operating margins were squeezed by its higher AI infrastructure and Reality Labs investments. As that pressure intensified, its EPS declined as it lapped a big one-time tax benefit in 2024.
NASDAQ: META
Key Data Points
Why could Meta be an undervalued and underrated AI play?
During its third-quarter conference call, Meta raised the full-year outlook for its total expenses from $114 billion-$118 billion to $116 billion-$118 billion, which would represent a 22%-24% increase from 2024. CFO Susan Li also predicted its capital expenditures (capex) would increase again in 2026 as it focused on "building our own infrastructure and contracting with third-party cloud providers."
Li said those investments would support "AI-powered experiences and services that will transform how people engage with our products in the future." In early November, Meta declared it would invest $600 billion into its infrastructure and jobs -- including its data centers -- through 2028 to strengthen its AI ecosystem.
In other words, Meta will prioritize the expansion of its AI foundations over its near-term margins and profits. That higher spending forecast spooked a lot of investors over the past month, but the company's investments should improve its social media algorithms, make its targeted ads more effective, and support its AI-enabled smart glasses and VR headsets.
From 2024 to 2027, analysts expect Meta's revenue and EPS to grow at a CAGR of 18% and 12%, respectively. Its stock still looks reasonably valued at 21 times next year's earnings.
Investors should take those estimates with a grain of salt, but the numbers suggest that Meta can offset its soaring AI costs by growing its higher-margin advertising business. It can achieve that as long as it keeps gaining new users, growing its ad impressions, and raising its ad prices. All three of those closely watched metrics rose over the past year.
Simply put, the growth of Meta's core advertising business could support its expansion into one of the world's largest AI companies. The company's recent post-earnings pullback might represent a great buying opportunity for long-term investors who can tune out the near-term noise.
