Meta Platforms (NASDAQ:META) stock is underperforming the market this year. It ended the week at $577, down by 27% from its highest point last year, with its valuation falling from $2 trillion to $1.47 trillion.
Meta Platforms Has Become a Bargain
The ongoing Meta stock retreat has made it a bargain. Its trailing price-to-earnings ratio has dropped to 20, its lowest level since February 27 2023. It has been in a slow downtrend after peaking at 32 in October last year.
The company’s forward price-to-earnings ratio has slipped to 17, lower than the technology sector average of 33. It is also lower than its five-year average of 22. Similarly, the forward price-to-earnings-to-growth ratio has slipped to 86 cents, also lower than the sector median of 1.2.
Meta Platforms stock has retreated because of the ongoing investments in artificial intelligence and fears that it will dilute its shareholders. It plans to spend $135 billion this year, up from the previous guidance of $115 billion, citing the rising chip prices. Its spent $72 billion in capex last year.
The company is planning to raise cash to fund this capital investment. According to the FT, it is considering raising about $85 billion, following in the footsteps of Alphabet (NASDAQ:GOOG), which raised $80 billion through a combination of debt and equity.
Most importantly, there are concerns about the return on investment in its AI investments. Meta AI, its main artificial intelligence platform, has a smaller market share compared to ChatGPT, Claude, and Google Gemini. A recent report suggested that Grok, Perplexity, DeepSeek, and Meta AI commanded less than 5% of the share.
Analysts are Bullish on Meta Platforms Stock
On the positive side, analysts are still bullish on the Meta stock price. According to Benzinga, the average estimate among analysts is $834, up by 45% from the current level. RBC Capital maintained their target at $810, while Rosenblatt maintained at $1,015. Wedbush boosted their rating from neutral to outperform, while Mizuho hiked to $850.
One of the main reasons for this is that it is still growing because of its advertising business. The most recent Meta earnings showed that its revenue jumped by 33% to $56.3 billion. Its net income soared by 61% to $26 billion.
The average estimate among analysts is that its revenue jumped by 25% this year to $237 billion. It will then make over $282 billion next year, and this gradual growth will continue over time.
Technicals Pose a Big Risk to Meta Platforms Shares
A key risk facing Meta Platforms is that its technicals suggest it has more downside over time. The weekly chart shows that it has slumped below the 23.6% Fibonacci Retracement and the 50-week moving average.
It has also formed a multi-month head-and-shoulders pattern, a common bearish reversal sign. Also, the two lines of the MACD have continued falling. Therefore, technicals suggest that the stock may continue falling, potentially to $500.
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