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Meta’s recent earnings report showed strong revenue growth driven by AI, but the company’s plans for increased capital spending led to a sell-off.
The stock sold off on Meta's plans to step up capital spending on AI infrastructure.
Expanding data center capacity will benefit Meta over the long term.
There is a solid case to be made for buying all the elite growth stocks that make up the Magnificent Seven, but Meta Platforms (NASDAQ: META) stands out for its stellar third-quarter revenue growth while still trading at an attractive valuation.
The recent dip in its share price presents an excellent opportunity to buy the stock as the company aims to accelerate its investments in artificial intelligence (AI).
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Image source: Getty Images.
Meta reported solid third-quarter earnings results, with revenue up 26% year over year. But market participants didn't seem to like the company's plans to accelerate capital spending in AI infrastructure, which could pressure earnings. This led to a sharp sell-off in the stock following the report.
However, Meta has a history of making upfront investments in new opportunities that cause near-term earnings pressure before realizing the full benefits down the road. The company sees an opportunity to increase its AI talent and build personal superintelligent services. This would create new money-making opportunities in new services for its massive user base of 3.5 billion.
As CEO Mark Zuckerberg explained on the Q3 earnings call, if achieving superintelligence takes longer than expected, Meta can still benefit from these investments by providing extra data center capacity, which is becoming a luxury in the AI race.
Investors are getting a great deal on the stock. The shares trade at just 21 times next year's consensus earnings estimate, which almost seems a bargain for this dominant tech company. Meta's massive customer base, $58 billion in trailing net profits, and attractive valuation make it one of the best tech stocks to buy right now.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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