Meta Platforms (NASDAQ: META) stock has taken a huge hit recently. Over the last three months, it has fallen from near $800 to $610 – a decline of about 23%.
Is the stock a bargain after this double-digit percentage fall? UK investors seem to think so – they’re buying it aggressively!
Attitudes towards AI stocks are changing
In recent weeks, we’ve seen a major shift in how big, institutional investors look at artificial intelligence (AI) stocks. All of a sudden, the potential return on investment from AI spending is a huge area of focus.
Those with cloud computing divisions such as Alphabet and Amazon have done OK over this period. The thinking is that spending on data centres and chips will pay off in the long run (because other AI companies will need these services).
However, where return on investment is more uncertain, as in the case of Meta (which doesn’t have a cloud computing division), stocks have been punished. Big investors probably also have a sense of déjà vu with this company as it spent billions on the metaverse a few years ago with minimal results and its share price fell from around $400 to near $100.
UK investors are buying
Now, it seems that UK investors sense an opportunity here – they’re buying the dip. On AJ Bell, for example, Meta was one of the most bought stocks during the week.
Is the tech stock a genuine bargain though? That’s hard to say.
It certainly looks cheap right now. Currently, it sports a price-to-earnings (P/E) ratio of 23. That’s the lowest P/E ratio in the Mag 7 at present.
But CEO Mark Zuckerberg has said that he expects spending on AI to ramp up in the years ahead (he’s said that he’d “rather risk misspending a couple of hundred billion” dollars on AI than fall behind in the race for artificial superintelligence). So, that means earnings (the ‘E’ in P/E) in the coming years could be lower, which in turn means the current P/E ratio could be deceptive.
And as I said above, with a company like this there’s no guarantee that the spending on AI will pay off and lead to higher earnings. What if ChatGPT becomes a super app and steals market share (ie eyeballs) from Facebook and Instagram?
My view on Meta
Personally, my gut feeling is that those buying now will be rewarded in the long run. Usually, when these Mag 7 stocks pull back by this kind of amount, it’s a buying opportunity.
It was certainly a buying opportunity when the stock fell heavily a few years ago. When Mark Zuckerberg stopped spending heavily on the metaverse, the share price ripped.
That said, Meta isn’t the first growth stock I think is worth considering today, because there’s quite a bit of uncertainty here right now.
What if Zuckerberg spends aggressively on AI for years and the share price keeps sliding? We’ll have to wait and see.
