And just like that, Meta’s earnings after earnings have also been wiped out.
The stock’s decline comes amid a broader market decline as shares of several software and AI (artificial intelligence)-focused companies are getting punished. tech-heavy nasdaq composite Down about 3.5% during this period.
Since the stock has returned to the levels it was trading at before the better-than-expected fourth-quarter update, should investors take this second opportunity to buy the stock at pre-earnings levels?
Image Source: Getty Images.
undeniable business momentum
It was not a surprise when investors reacted so positively to Meta’s fourth quarter update. Its revenue rose 24% year-over-year to $59.9 billion, beating analysts’ consensus forecast of $58.5 billion in revenue. And its earnings per share of $8.88 similarly blew away analysts’ forecasts for the metric.
Additionally, the company’s underlying platform health remains healthy. Meta said its daily active users on its platform grew by an impressive 7% year-on-year to 3.58 billion. Additionally, Meta said engagement and user growth were the primary drivers for an 18% year-over-year increase in ad impressions in the fourth quarter.
And management guided for further strong growth. In fact, the midpoint of its first-quarter revenue guidance represents 30% year-over-year growth. Even excluding the expected 4% tailwind from foreign exchange in the quarter, this represents 26% year-over-year growth — an acceleration from its fourth-quarter growth rate.
1 reason to be cautious
While Meta’s revenue momentum is incredibly impressive, investors should be aware that this growth has come at a cost. Part of Meta’s business boom reflects the company’s aggressive investments in AI. But AI is expensive.
In keeping with the company’s heavy investment stance, Meta’s costs and expenses increased 40% year over year in the fourth quarter, which weighed on earnings growth. The company’s operating margin fell to 41% from 48% in the year-ago period, and earnings per share grew only 11% year over year — less than half its revenue growth rate.
What’s more, as far as revenues are concerned, despite management’s outlook for a strong start to 2026, the company only expects its full-year 2026 operating income to be “above” its 2025 operating income.
This low-bar approach to its operating income growth reflects the heavy investment cycle Meta is currently in. The company expects full-year capital spending to be between $115 billion and $135 billion, up from about $72 billion in 2025.
This huge spending cycle largely depends on the company’s bet on AI.
“We are now seeing a major AI acceleration,” Mark Zuckerberg, Meta’s founder and CEO, said in the company’s fourth-quarter earnings call. “I expect 2026 to be a year where this wave becomes even stronger on multiple fronts.”
The company is spending heavily to capitalize on this AI wave.
(-3.24%) $-22.44
current price
$669.26
key data points
$1.7T
day limit
$667.47 -$688.83
52wk range
$479.80 -$796.25
volume
1.1m
average volume
18m
gross margin
82.00%
dividend yield
0.31%
Is the stock worth buying?
All of this brings us back to our question: Since the stock is giving back all of its post-earnings gains, is it a good time to buy? Possibly for investors who want to hold shares of a tech company for the long term.
But given the company’s major investment in AI and the fact that investors will have to rely heavily on management as this investment cycle requires a near-term hit on operating margins, investors should treat an investment in Meta like a high-risk investment. This means investors should keep any positions in the stock short.
With the stock trading at a price-to-earnings ratio of around 28 at the time of this writing, I think the current valuation does a very good job of taking into account the risks facing the company. But the stock isn’t cheap either, so investors buying the stock should make sure they really believe in Zuckerberg’s big AI bet. If this does not go well, the stock could perform poorly from here.
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