AI Stocks Struggle Amid Market Sell-Off: Meta Offers Opportunity
Artificial intelligence (AI) stocks are facing significant challenges due to the current sell-off in the stock market. Increased tariffs may raise the costs of AI infrastructure, contributing to rising fears of an upcoming recession. As a result, big tech firms may find that their substantial investments in AI could negatively impact profits over the next few quarters. Consequently, many leading AI stocks have decreased by over 25%.
The economic landscape remains uncertain, with policy changes occurring nearly every day. Historically, investing in strong companies with clear competitive advantages has yielded good returns during such unpredictable times. One AI leader, currently sitting 29% below its all-time high achieved earlier this year, has emerged as a potential buy.
Investing in Meta Platforms
Investors may want to consider adding Meta Platforms (NASDAQ: META) to their portfolios. As of this writing, Meta presents a favorable opportunity for potential growth.
Image source: Getty Images.
Meta’s AI Advantage in a Volatile Market
Meta is part of a select group of “hyperscalers” building extensive data centers filled with GPUs to enhance AI training and inference capabilities. Unlike many of its peers, Meta does not operate a public cloud platform, allowing it to avoid the uncertainties of cloud customer spending. This enables Meta to concentrate on its long-term objectives and optimize capital investments.
Despite this advantage, Meta is not entirely immune to the impact of an economic slowdown, as a significant portion of its revenue comes from advertising. Reduced consumer spending typically leads to lower advertising budgets. However, Meta has historically shown greater resilience compared to other advertising channels, attributed to its vast user base and targeted advertising capabilities. This targeting is critical for advertisers aiming to maximize limited budgets in tough economic times, which is further enhanced by AI investments.
Unlocking AI Potential at Meta
Meta has been developing AI algorithms for over a decade, but it has recently accelerated its capabilities. For instance, with the launch of Reels to compete with TikTok, Meta revamped its recommendation algorithm. The company noted that generalized algorithms increased user engagement.
While Meta previously struggled to scale recommendations effectively, it has leveraged insights from its large language model development to enhance the breadth and effectiveness of recommendations across its platforms. This expansion has led to heightened user engagement and increased ad views, while improved ad relevancy has resulted in a higher willingness from marketers to pay for ads.
Additionally, Meta is integrating more generative AI features into its ad-buying tools. Its Advantage+ campaigns optimize ad creatives for specific marketing objectives. As of January, four million advertisers utilized this feature, with potential for rapid growth as AI technologies evolve. AI-enhanced campaigns hold the promise of encouraging advertisers to increase spending while reducing ad creation costs.
Beyond enhanced advertising, Meta is developing its AI chatbot, Meta AI, which aims to attract 1 billion users. The chatbot has already surpassed 700 million users as of January, and upon reaching full scale, monetization through personalized features could follow.
Seizing a Bargain Amidst Market Challenges
Despite the economic uncertainties that could impact Meta’s finances, the company’s solid position within the advertising market and growth opportunities present a compelling buy at current valuations. Shares trade at a price-to-earnings ratio of less than 22, significantly below its historical average, even amidst anticipated future growth.
Concerns remain about how AI-related expenditures might impact profitability this year. Increased depreciation from prior investments is expected to compress operating margins, but Meta is anticipated to still generate positive earnings-per-share growth, buoyed by its significant share repurchase program. Forecasts suggest better results could materialize by 2026 as Meta optimizes its AI budget.
For investors who can adopt a long-term perspective, Meta’s position in AI and current stock price, well below its all-time high, makes it an attractive option.
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Key Considerations Before Investing in Meta Platforms
As you contemplate purchasing stock in Meta Platforms, it’s important to review some recent evaluations:
The Motley Fool Stock Advisor analyst team recently listed their top 10 best stocks for potential investors. However, Meta Platforms was not included in this list. The stocks that were selected are projected to yield significant returns in the upcoming years.
For instance, consider when Netflix was featured on this list on December 17, 2004. An investment of $1,000 at that time would have grown to $594,046!* Similarly, when Nvidia made the list on April 15, 2005, a $1,000 investment would be worth $680,390!*
It’s important to highlight that Stock Advisor has achieved an average return of 872%—significantly outperforming the 160% return of the S&P 500.
Explore the complete list of top 10 stocks »
*Stock Advisor returns as of April 21, 2025
Randi Zuckerberg, a former director of market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board. Additionally, Adam Levy holds positions in Meta Platforms. The Motley Fool also holds positions in and recommends Meta Platforms, and has a disclosure policy.
The opinions expressed here are those of the author and do not necessarily represent the views of Nasdaq, Inc.
