Meta’s Stock: A Value Trap or a Hidden Opportunity?

Meta US30303M1027

Meta finds itself at a critical crossroads. Investor sentiment is being weighed down by the company's substantial infrastructure investments aimed at artificial intelligence, even as its share price has retreated to what some consider an attractive valuation. This tension has prompted analysts at Morgan Stanley to adjust their price target, though they maintain a favorable long-term outlook. The central question for the market is whether the current discount represents a compelling entry point or a red flag signaling escalating expenditures.

Reports suggest internal discussions regarding AI direction may be causing some strategic friction. The launch of the new AI model, internally dubbed "Avocado," is reportedly delayed until 2026, introducing uncertainty into the product roadmap. In response, CEO Mark Zuckerberg has taken a hands-on role with the "Superintelligence" research team. Furthermore, the company is reportedly considering a strategic pivot from its open-source approach toward more closed AI models, a move seen as potentially creating better monetization avenues.

Meanwhile, positive signals for future profitability are emerging from the Reality Labs division, home to the Metaverse ambitions. The unit is facing potential staff reductions and budget cuts—a development market observers view as a necessary step toward fiscal discipline. This is particularly relevant given that Reality Labs reported an operating loss of $4.43 billion on revenue of just $470 million in the third quarter alone. Since Morgan Stanley's models have not yet factored in any personnel reductions, there exists potential for upside surprises in future earnings estimates.

Valuation Under Significant Pressure

The recent share price decline has created a notable valuation disparity. Meta's forward price-to-earnings (P/E) ratio has fallen from a high of 28 to approximately 22. This now places the social media giant at a clear discount to rival Alphabet, which trades at a P/E of 28. Morgan Stanley analyst Brian Nowak characterized Alphabet's premium as "overdone," emphasizing that Meta is one of the few companies positioned to effectively monetize its data and distribution scale through AI.

Morgan Stanley has reduced its price target for Meta from $820 to $750, while reaffirming its "Overweight" rating. The bank cited concerns over rising operational expenses, which could reach an estimated $155 billion by 2026, as the primary reason. This projected cost surge is a direct consequence of the company's aggressive AI investment strategy.

The pressure on the stock is further illustrated by its current trading price, which sits roughly 21% below its 52-week high.

Key Data Points and Developments:
* Revised Capex Forecast: Capital expenditure guidance for 2025 was raised to a range of $70 to $72 billion.
* Strong Revenue Growth: Third-quarter revenue increased by 26% year-over-year to $51.2 billion.
* Analyst Adjustment: Morgan Stanley's price target was lowered to $750.
* Compressed Valuation: The P/E ratio contracted from 28 to 22.

The Pivotal January Catalyst

The upcoming earnings call in January 2026 is widely viewed as a crucial catalyst for the stock's trajectory. Investors are anticipating clear guidance on operational margins, which could establish a floor for earnings per share around the $30 mark. Morgan Stanley analysts suggest that if management successfully executes its strategy and the "Superintelligence" team delivers on its promises, a bullish scenario could see the share price reaching as high as $1,000 by 2027.