Meta Platforms: A Penny Saved…Is a Penny Spent on AI?

The Oracle of Menlo Park, otherwise known as Meta Platforms (META 3.24%), has experienced a slight… recalibration of expectations. A tumble, if you will. Shares, which briefly dared to ascend after the latest quarterly pronouncements, have retreated, giving up all gains and then some. About ten percent, give or take a goblin’s ransom. One might almost suspect a deliberate attempt to confuse the chart readers.¹

This isn’t entirely Meta’s fault, mind you. The entire market seems to be suffering from a case of the jitters, particularly those ventures obsessed with the artificial conjuring of intelligence. The Nasdaq Composite, that volatile index of hopes and dreams, is down a respectable 3.5%. It’s enough to make a seasoned gnome weep into his ale.

So, the question becomes: is this a chance to acquire a piece of the digital realm at a pre-conjuring price? Or are we witnessing the first tremors of a larger, algorithmic earthquake?

Undeniable Business Momentum (Or, The Illusion of Growth)

The initial reaction to Meta’s quarterly report was, admittedly, understandable. Revenue soared a respectable 24% to $59.9 billion, exceeding even the most optimistic predictions of the accounting wizards. Earnings per share clocked in at $8.88, leaving analysts scrambling to revise their scrolls.² It was, for a brief moment, a triumph of commerce over chaos.

The underlying health of the platforms themselves remains… robust. Daily active users across all realms rose by a rather impressive 7% to 3.58 billion. Engagement is up, user growth is healthy, and ad impressions increased by 18%. All good news, provided you don’t dwell too much on what exactly is being advertised.³

Management, predictably, is forecasting continued growth. The midpoint of their first-quarter revenue guidance suggests a 30% year-over-year increase. Even accounting for the vagaries of foreign exchange rates (a currency, one suspects, invented solely to confuse honest merchants), this still represents a 26% increase – a rather brisk pace, even for a digital kingdom.

One Reason to Be Cautious (Or, The Cost of Conjuring)

However, this impressive growth has come at a price. A considerable price. Part of the acceleration is due to Meta’s aggressive investments in Artificial Intelligence – a field that promises much, but delivers mostly complex algorithms and existential dread. AI is, in essence, very expensive to think.

Costs and expenses rose a staggering 40% year-over-year in the last quarter. The operating margin plummeted from a comfortable 48% to a mere 41%. Earnings per share grew by a paltry 11% – less than half the rate of revenue growth. It’s as if the kingdom is building a magnificent tower, but forgetting to pay the stonemasons.⁴

Even more concerning is the outlook for future earnings. Management expects full-year 2026 operating income to be “above” 2025 levels. A remarkably unambitious goal, one might observe. It suggests that the current investment cycle is not merely a short-term expenditure, but a fundamental shift in strategy.

Capital expenditures are projected to be between $115 billion and $135 billion, up from a mere $72 billion in 2025. Expenses are expected to reach $162 billion to $169 billion, up from $118 billion. This isn’t just spending; it’s a digital deluge.⁵

The entire exercise boils down to a gamble on AI. A rather large gamble, admittedly, but a gamble nonetheless.

“We are now seeing a major AI acceleration,” declared Mark Zuckerberg, the kingdom’s founder and CEO, during the quarterly earnings call. “I expect 2026 to be a year where this wave accelerates even further on several fronts.” One can only hope the foundations are strong enough to withstand the tide.

Is the Stock a Buy? (Or, A Question of Risk Tolerance)

Which brings us back to the original question: is this a good time to acquire a piece of the digital realm? For investors with a long-term horizon, and a penchant for risk, probably. But it’s a risk that should be approached with caution.

This isn’t a simple investment; it’s a bet on a future that remains shrouded in uncertainty. The current valuation, at a price-to-earnings ratio of around 28, seems to factor in the risks, but it doesn’t necessarily offer a significant margin of safety.⁶

Investors who choose to buy the stock should do so with the understanding that they are essentially funding a grand experiment. If Zuckerberg’s AI bet pays off, the rewards could be substantial. But if it doesn’t, the stock could suffer a significant decline. It’s a bit like funding a dragon-breeding program – potentially lucrative, but also potentially disastrous.

As a dividend hunter, I’m more interested in reliable income than speculative growth. But even I can appreciate the potential here. Just remember to keep your position small, and always have an escape route planned. After all, even the most carefully constructed kingdom can fall.

¹ Chart readers are a peculiar breed. They claim to be able to predict the future by studying squiggly lines. Most are harmless, but some are known to dabble in dark magic.
² Scrolls are notoriously difficult to revise. Ink smudges easily, and parchment is surprisingly fragile.
³ The algorithms are learning, and they’re starting to understand our desires. This is, frankly, terrifying.
⁴ A kingdom without stonemasons is a kingdom doomed to crumble.
⁵ Digital deluges are particularly unpleasant. They tend to clog up the servers and cause widespread panic.
⁶ A margin of safety is a crucial concept in investing. It’s the difference between a comfortable retirement and a life of penury.

2026-02-05 02:33

Undeniable Business Momentum (Or, The Illusion of Growth)

One Reason to Be Cautious (Or, The Cost of Conjuring)

Is the Stock a Buy? (Or, A Question of Risk Tolerance)

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