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This has been a tumultuous year for Meta Platforms (NASDAQ: META) shareholders. For most of 2026, Meta's stock was in the negative range. Then, the stock caught fire in September thanks to a positive reception of the Meta Muse rollout, its artificial intelligence agents aimed at supporting everyday functions. However, October sharply reversed that course after a poorly received earnings report. In fact, Meta stock is down around 18% from its October high.
But was that a warranted reaction? Or is the market just getting upset over things Meta is doing again? Let's take a look.
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First, let's tackle Meta's earnings report. Meta reported 26% revenue growth in Q3, slightly down from the 28% growth it delivered in Q2. Meta's earnings also took a hit, thanks to a $9.89 billion settlement with U.S. state attorneys general over a lawsuit about how social media affects teen health. If that were subtracted, it would have provided a far greater profit figure that the market would have found easier to digest.
Regardless, it's a part of Meta's results, and investors need to account for it. However, when 2027's earnings are used to value the stock, it still looks pretty cheap.
Objectively, 17.5 times next year's earnings is a pretty good price to pay for Meta stock, so why is the market negatively reacting? The biggest reason is Meta's AI spending. Meta's free cash flow turned negative in Q3, meaning it's spending more cash than it's generating. So, it must either take on debt or issue shares to cover the shortfall. Meta announced a plan to issue $95 billion worth of new shares to bridge the deficit, which would dilute existing shareholders. The market didn't like that either, and now Meta is where it is.
I think these are all valid market reactions, as Meta isn't maximizing its short-term profitability. However, long-term investors should be cheering Meta on. If Meta is seeing a great return on investment from its AI spending, then spending more makes a lot of sense, especially in the early phases of the AI boom. We'll see if it pays off for Meta, but growing at 26% is pretty strong.
So, does that make Meta a buy? I think it's an OK buy at these levels, as it will likely rebound eventually. But Meta will need to show strong growth for the next few years to keep justifying its huge spending bill. If it can do that, then Meta stock is a good buy today.
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Keithen Drury has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
Down 18% From Its October High, Should You Buy the Dip on Meta Stock? was originally published by The Motley Fool
