Down about 25% from an all-time high of nearly $800, shares of Meta Platforms (META 2.61%) have been slammed. As of this writing, the stock has slipped below $600.
Yet the underlying business is putting up phenomenal numbers. The company not only posted strong fourth-quarter revenue growth but also guided for impressive first-quarter results.
Is this a buying opportunity? Maybe in a very small dose, but I wouldn't load up here.
Image source: The Motley Fool.
Strong growth and surging costs
Meta's recent Q4 financial results were impressive, showcasing a business that continues to dominate the digital advertising landscape.
The company's advertising revenue was $58.1 billion in the quarter -- up 24% from the year-ago quarter. This advertising strength across its core social media platforms helped drive a robust operating margin of 41%, resulting in nearly $25 billion in operating income for the period.
While this operating margin is impressive in a vacuum, it's notably down from 48% in the year-ago quarter as the company's costs and expenses surge amid a major investment cycle.
Highlighting Meta's recent deleveraging, the company's earnings per share grew at a much slower rate than revenue, rising just 11% year over year.
And free cash flow increased -- but also grew more slowly than revenue. The key cash flow figure was about $14.1 billion, up from about $13.2 billion in the year-ago quarter.
However, even though costs are weighing on Meta's earnings and free cash flow, the company's growth profile is actually strengthening.
The midpoint of the company's first-quarter guidance range calls for revenue growth of about 30%.
"We are now seeing a major AI acceleration," explained CEO Mark Zuckerberg in the company's fourth-quarter earnings call. "I expect 2026 to be a year where this wave accelerates even further on several fronts."
The cost of superintelligence
But securing artificial intelligence (AI)-driven growth is costly.
"We're really taking advantage of the current business strength to reinvest a lot of the revenue into what we see as very attractive investment opportunities in AI infrastructure and talent," explained Meta chief financial officer Susan Li during the company's fourth-quarter earnings call.
In Q4, Meta's costs and expenses soared 40% year over year, far outpacing its 24% year-over-year growth rate.
And management expects expense growth to surge again in 2026. For this reason, the company expects operating income to be "above" 2025 levels.
This means operating income growth in 2026 could be much lower than revenue growth as the tech giant's profit margins compress.
The bulk of this upcoming spending will go toward infrastructure costs, including third-party cloud spending and higher depreciation, as well as adding technical talent, management explained in the company's fourth-quarter update.
Highlighting the shift toward a more capital-intensive model, Meta's long-term debt ended the year at about $58.8 billion as the company tapped debt markets to help fund its infrastructure scale-up. Though Meta can easily handle a step-up in its capital intensiveness. Its total 2025 operating cash flow is $115.8 billion, and it ended the year with $81.59 billion in cash, cash equivalents, and marketable securities.
NASDAQ: META
Key Data Points
Shares could get even cheaper
So, does the stock's recent haircut make it a buy?
While these investments might be necessary to secure the company's competitive position over the next decade, they represent a staggering capital outlay that will undoubtedly weigh on profitability in the near term.
But investors seem to be pricing in some of this change in cost structure.
As of this writing, Meta trades at a price-to-earnings ratio of about 25.
A valuation like this for a company guiding first-quarter revenue growth of around 30% arguably reflects the fact that it is entering a highly capital-intensive cycle in which expenses will outpace sales growth.
That's why investors interested in the stock might want to consider a small position; the valuation looks reasonable, even given Meta's changing growth profile.
But the stock is still risky, especially as AI introduces new risks and ultimately more uncertainty. Shares could go even lower if the macroeconomic environment weakens or if the return on these heavy infrastructure investments takes longer than anticipated.
Overall, despite Meta's recent sell-off, I think keeping any position in the stock small is probably prudent.
