Shares of social media giant Meta Platforms (META 2.52%) have hit a rough patch recently. As of this writing, the stock has fallen roughly 17% over the last six months. This pullback comes amid investor unease about the massive, capital-intensive artificial intelligence (AI) buildouts across the technology sector.
With that said, it's times like this -- when some of the market's Wall Street darlings are taking a hit -- that it is a good time to go searching for investment ideas.
But does this pullback represent a buying opportunity, or is the market right to be cautious about Meta's spending plans?
Image source: Getty Images.
Firing on all cylinders
Meta's core advertising engine continues to produce staggering growth.
In the fourth quarter of 2025, revenue rose 24% year over year to $59.9 billion. This top-line momentum was driven by strong user engagement, with ad impressions delivered across the company's family of apps increasing 18% year over year. Notably, this represented an acceleration from the 14% impression growth Meta posted in Q3.
While the average price per ad increased by 6% -- a deceleration from 10% growth in the prior quarter -- the sheer volume of ads more than compensated.
Underpinning this growth is a massive and expanding audience. The company reported that its total daily active users across its apps averaged 3.58 billion in December, up 7% from a year earlier.
Management expects its strong business momentum to continue, guiding for first-quarter 2026 revenue between $53.5 billion and $56.5 billion. Against the $42.3 billion in revenue the company delivered in the first quarter of 2025, the midpoint of this guidance implies roughly 30% year-over-year growth -- meaning top-line growth could actually accelerate.
Earnings per share grew slower as the company is reinvesting in its business aggressively. Specifically, Meta's fourth-quarter earnings per share rose 11% year over year to $8.88. But this is impressive considering that costs and expenses for the period rose 40% year over year.
A massive cash cushion
Despite these heavy investments, Meta is operating from a position of immense financial strength.
The company generated $43.6 billion in adjusted free cash flow (operating cash flow less capital expenditures and principal payments on finance leases) for the full year 2025. Further, Meta ended the year with $81.6 billion in cash, cash equivalents, and marketable securities, compared to $58.7 billion in long-term debt.
This financial firepower gives the company the flexibility to fund its ambitious AI projects and continue returning capital to shareholders. In 2025, the company spent $26.3 billion on share repurchases and paid out $5.3 billion in dividends.
Soaring capital expenditures
So why is the stock down if the business is performing so well?
The answer probably comes down to the sheer scale of the company's investments in AI infrastructure. In 2025, Meta's capital expenditures were $72.2 billion. But the company expects this figure to climb dramatically in 2026.
Management guided to 2026 capital expenditures of $115 billion to $135 billion. The midpoint of this guidance range implies a massive 73% year-over-year increase in capital spending.
During the company's fourth-quarter earnings call, CEO Mark Zuckerberg made the strategy clear: "As we plan for the future, we will continue to invest very significantly in infrastructure to train leading models and deliver personal superintelligence to billions of people and businesses around the world."
While this is a long-term growth opportunity for Meta, it's also a risk. When capital expenditures rise this quickly, it can put severe pressure on a company's free cash flow and even weigh on profit margins as depreciation costs rise. Without a sufficient increase in top-line growth rates from these investments, Meta's profitability could suffer.
NASDAQ: META
Key Data Points
And it's not like shares are cheap. But they're not expensive either.
Priced at about 27 times earnings, the stock prices in continued robust earnings growth over the next five years and beyond. In other words, the stock's valuation assumes the company can earn a reasonable return on its capital expenditures over time.
Ultimately, given Meta's exceptional revenue growth and its highly engaged user base, I think the stock is a buy on this dip -- even with the risk that a big capital expenditure ramp-up may not pay off as well as expected.
But I'd keep any position size modest. A smaller position limits exposure to the very real risk that the company's capital intensity continues to accelerate and that the returns on its AI investments aren't as good as expected.
