1 Surefire Artificial Intelligence (AI) Stock to Buy on the Dip

After a strong performance over the trailing-12-month period, Meta Platforms' (NASDAQ: META) rally hit a snag. The tech company's third-quarter earnings were poorly received by the market, sending the stock down about 10% on the heels of its earnings update.

However, this is a bit of an overreaction. Despite some slightly worrying signs, Meta's business remains strong, its outlook is still bright, and after that massive one-day decline, the company's shares look reasonably valued. Here's why investors should strongly consider scooping up Meta Platforms' shares on the dip.

What went wrong in Meta's update?

Meta Platforms continues to benefit from its work in artificial intelligence (AI), as the company's AI-powered algorithms increased engagement on its websites and apps. In the third quarter, time spent on Facebook increased by 5% and on Threads by 10%. Time spent watching videos on Instagram climbed 30% since last year.

Image source: Getty Images.

At the same time, Meta Platforms is improving the ad-launch process, thanks to AI, helping businesses get more bang for their advertising bucks. The result is that Meta Platforms' advertising business, which is still by far its biggest source of sales, is still performing extremely well and driving solid top-line growth.

Third-quarter revenue increased 26% year over year to $51.2 billion. The company was also helped by its expanding ecosystem. In the period, Meta Platforms recorded 3.5 billion daily active users across all its websites and apps, up 8% from the year-ago period.

However, Meta Platforms' costs and expenses grew even faster, leading to a decline in the bottom line. The company's earnings per share (EPS) came in at $1.05, 83% lower than the year-ago period.

There are at least two main reasons why Meta Platforms' earnings dropped during the period. First, the company's AI-related spending continues to grow, and management warned that it would accelerate even more in 2026.

Second, Meta Platforms incurred a one-time, non-cash tax expense of $15.93 billion one-time, non-cash income tax charge. These two factors spooked investors, triggering a massive sell-off in the stock. However, this may be an excellent opportunity to scoop up Meta Platforms' shares on the dip. Here's why.

Why the stock can rebound

Let's put things in perspective. Without that one-time tax expense, Meta Platforms' EPS would have landed at $7.25, a strong 20% higher than the year-ago quarter, even with the increasing AI-related spending.

Considering this tax charge isn't a problem that will plague Meta Platforms every quarter, the sell-off seems a bit overdone -- unless, maybe, the fact that the company will double down on its expensive AI strategy next year is a good reason to run for the hills. Even then, Meta Platforms has shown the impact AI can have on its financial results.

We're still only in the early innings of the AI revolution, and Meta Platforms isn't done cashing in on its AI-related efforts. Near-term opportunities include Meta's desire to automate the ad-launch process entirely, which would bring even more ad revenue to the business. The company hopes to do so by the end of next year.

Meta's AI spending also prepares it for potential opportunities in the midterm to long term, as investors see more AI breakthroughs shake up the field. The company will be ready to capitalize, thanks to its superior computing capacity.

Meanwhile, Meta Platforms has other growth opportunities, such as paid messaging. It's slowly ramping up sales from this and other sources. Although they will take a while to make a material impact on the company's financial results, they're worth keeping in mind.

Lastly, Meta Platforms' shares look reasonably valued, compared to its similarly sized peers. The company's forward price-to-earnings ratio (P/E) is on the low end, compared to other trillion-dollar tech giants, while its revenue growth is on the high end.

AAPL P/E Ratio (Forward) data by YCharts.

For all those reasons (and more), Meta Platforms looks like a strong buy after its post-earnings dip. However, the stock might not stay at its current levels for much longer.

Prosper Junior Bakiny has positions in Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.