Wall Street braces for lower earnings after Meta updates its capital spending plans.
Meta Platforms (META -10.56%) delivered first-quarter financial results above expectations, but the stock tumbled after management said it was going to ramp up spending to support growth initiatives. This clouds the near-term outlook for the company’s profits, which is why the stock is falling.
Bernstein lowered its price target from $590 to $565 but maintained an outperform (buy) rating on the shares. Here’s why the dip could be a great buying opportunity.
Why buy Meta stock
Meta reported solid numbers across the board. Revenue grew 27% year over year, and higher margins boosted earnings per share by 114%. However, the company’s investments in artificial intelligence (AI) initiatives will come at a cost that could put the brakes on earnings growth in the near term.
Meta said it expects full-year operating expenses to be $2 billion higher than its previous forecast. It also plans to spend more on infrastructure to support AI development, which could range from $35 billion to $40 billion.
Wall Street typically likes to see higher visibility to growth in the near term, but Meta is investing for a long-term payoff. These investments are ultimately designed to benefit user engagement and business activity across its social media platforms.
Meta is still the same business it was yesterday. It has a history of accelerating capital expenditures when it sees an opportunity to grow the value of the business. The stock should recover and move toward the analyst’s price target as market participants return their attention to the company’s long-term growth prospects.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
