As of this writing, shares of social media and digital advertising giant Meta Platforms (META 2.52%) are down about 3% in 2026. The S&P 500 is up close to 1% over the same stretch.
The underperformance is not new either. Meta's total return in 2025 was about 13%, versus about 18% for the S&P 500.
On the surface, that disconnect looks odd. Meta just finished 2025 with fourth-quarter revenue up 24% year over year to $59.9 billion. But the stock is trading as if investors couldn't care less about the underlying business momentum, and are more focused on Meta's spending plans.
Image source: Meta Platforms.
The business is still compounding
Starting with the top line, Meta's full-year revenue rose 22% in 2025 to $201.0 billion. And fourth-quarter revenue, specifically, rose 24% year over year.
Zoom in on what is driving Meta's top line, and the story is still ads. Ad impressions across Meta's Family of Apps rose 18% year over year in the fourth quarter, and average price per ad increased 6%. And total daily active users across its apps averaged 3.58 billion in December, up 7% year over year, and demonstrating why advertisers love Meta's platforms: it comes with an enormous base of engaged users.
And Meta's business remains extremely profitable, with its family of apps business (primarily advertising) producing operating income of $30.8 billion in the fourth quarter -- enough to more than offset the company's cash-draining Reality Labs business segment (a segment that includes its virtual reality Meta Quest devices, AI glasses, and software for these devices, among other non-advertising products and services), which posted an operating loss of $6.0 billion.
Meta has the cash flow to fund big ambitions, too. Free cash flow was $43.6 billion in 2025, even with capital expenditures of $72.2 billion (note that free cash flow is a company's cash from operations less capital expenditures). And the company returned meaningful capital to shareholders, totaling $31.6 billion in 2025 -- $26.3 billion in share repurchases and $5.3 billion in dividends.
So yes, the core business looks like it is firing on all cylinders.
NASDAQ: META
Key Data Points
Spending is ramping
The issue, however, is that Meta is leaning into a far more capital-intensive posture in 2026.
In the fourth quarter, the social media company's costs and expenses rose 40% year over year -- well ahead of revenue growth. That pressure showed up in Meta's operating margin: 41% in Q4, down from 48% a year ago -- a 700-basis-point decline.
Management's 2026 outlook makes the setup even more demanding. Meta expects 2026 capital expenditures to be in the range of $115 billion to $135 billion. That's against $72.2 billion in 2025. That implies a step-up of about 60% to 90%. The company also expects full-year total expenses of $162 billion to $169 billion, versus $117.7 billion in 2025.
This is the heart of the stock's underperformance story. Investors are debating whether this big AI spending is a wise gamble (or not).
To the company's credit, management told investors it expects 2026 operating income to exceed 2025 operating income, despite the infrastructure ramp. But that also means that the company probably doesn't expect the key profitability metric to grow much either. Still, it's impressive that Meta can grow its operating income at all during a year of such significant expense and expenditure growth.
Ultimately, I think Meta stock looks like a buy after this stretch of underperformance. The core advertising business is still growing rapidly, and it is guiding for even faster growth in Q1. Additionally, the stock's valuation is reasonable considering its strong business momentum; shares are trading at 27 times earnings as of this writing.
But I would keep any position in the stock small. Meta is still tied heavily to advertising demand, and that can slow quickly if the economic backdrop weakens. And once a company commits to $115 billion to $135 billion of annual capital spending, timeline risk rises. If the payoff materializes more slowly than investors expect, they could lose faith in Meta's capital allocation practices.
