Meta Platforms (NASDAQ: META) stock has taken a huge hit recently. Yesterday (26 March), it fell 8% taking its drop from all-time highs to 31%.
Is it time to buy this Magnificent 7 name for my portfolio? Let’s take a look at the set-up.
Looking cheap today
Meta certainly looks cheap right now. With analysts expecting earnings per share of $29.80 this year and $34.40 next, we’re looking at price-to-earnings (P/E) ratios of 18.4 and 15.9 on a forward-looking basis.
These are low valuations for a Magnificent 7 stock. Especially when you consider the growth that Meta is anticipated to generate in the coming years.
This year, revenue is projected to climb about 25% year on year to $250bn. Next year, analysts expect $296bn (+18%).
As for earnings per share, we’re looking at growth of about 27% this year and 15% next. If we take that expected earnings growth figure for 2026 and compare it to the P/E ratio, we get a price-to-earnings-to-growth (PEG) ratio of just 0.7 (a ratio under one typically signals that a stock is undervalued).
An AI winner?
Looking beyond the valuation, Meta has big plans for the future. While the company is known for its social media platforms today, it’s likely to be more of an AI business down the track.
Meta’s aim is to build a ‘superintelligence’ platform and give people access to powerful AI tools that can empower them to achieve unprecedented productivity. Ultimately, its goal is to become an indispensable utility in the AI era.
To do this, it’s investing billions in AI infrastructure (data centres, chips, nuclear power, etc). It’s also focusing on products such as large language models (Llama) and smart glasses.
So, there’s a long-term growth story here. If the world continues to adopt AI, Meta could potentially get much bigger.
Big risks for investors
While this all sounds exciting, there are quite a few risks to the investment case (in both the short term and the long term). In the short term, the company is facing a high level of regulatory/legal scrutiny due to the addictive nature of its platforms.
The reason the share price dropped yesterday was that the company lost a court case in relation to social media harm. Experts believe that this could open it up to a wave of litigation (which could potentially impact its profits and cash flows significantly).
Meanwhile, in the long run, we don’t know if Meta’s huge investments in AI (it plans to spend up to $135bn this year) will actually pay off. The company is going to have a lot of competition in this space and at this stage, no one knows exactly how AI will play out.
One other thing to mention is that the share price chart looks terrible. Right now, the stock is in a nasty downtrend and buying may be akin to trying to catch a falling knife.
Better opportunities in the market?
Weighing this all up, I’m not going to buy Meta stock for my portfolio right now. In my view, it’s too risky.
I think there are better opportunities for me in the market at the moment.
