Meta’s Strategic Pivot: A High-Stakes Bet on Proprietary AI

Meta US30303M1027

Meta Platforms finds itself at a critical juncture. According to market reports, CEO Mark Zuckerberg is orchestrating a fundamental strategic reversal, moving the company away from its long-standing open-source philosophy for artificial intelligence. This shift is unfolding against a backdrop of internal friction and a recent price target cut by Morgan Stanley, fueling investor unease. The central question is whether this new, closed approach can revitalize the company's equity performance.

Despite the strategic uncertainties, analyst sentiment retains a core of optimism. Morgan Stanley recently adjusted its outlook, lowering the price target for Meta shares from $820 to $750. However, the firm maintained its "Overweight" rating. The rationale centers on valuation: even during this transitional phase, the stock appears attractive. Trading at a price-to-earnings (P/E) ratio of approximately 22, the equity sits well below its historical peaks and is valued more conservatively than rivals like Alphabet. At a recent price of €549.30, the shares are down more than 22% from their 52-week high recorded in February.

Internal Realignment and Capital Reallocation

This strategic overhaul is not without its internal challenges. Reports indicate growing tensions between the new AI leadership, including figures like Alexandr Wang, and company veterans such as Chris Cox. These conflicts have already contributed to the departure of prominent figures, including AI pioneer Yann LeCun.

Concurrently, Meta is executing a significant capital reallocation. The budget for its loss-making Metaverse division, Reality Labs, has been slashed by 30% for 2025. The freed-up capital is being funneled into AI infrastructure, with total projected expenditures reaching as high as $118 billion. This move is a direct response to mounting pressure to convert immense investments into tangible profits.

The Core Shift: From Open Source to "Avocado"

The primary driver of current market uncertainty is the reported change in AI strategy. For years, Meta championed open-source models through its "Llama" series. However, financial imperatives now seem to be forcing a rethink. Sources indicate the company is developing a proprietary, commercial AI model under the internal codename "Avocado." The objective is the direct monetization of AI tools to compete with OpenAI and Alphabet, rather than using the technology solely in a supporting role for its core advertising business.

This represents a fundamental departure from Zuckerberg's previous approach, compelling investors to carefully assess the execution risks of this pivot.

The Road Ahead: A Defining Product Launch and Regulatory Hurdles

Investor focus is now shifting to the first quarter of 2026, when the "Avocado" model is anticipated to debut. The market performance of this product will serve as the crucial test for Zuckerberg's revised strategy. However, headwinds are also on the horizon. Starting in January 2026, new EU data privacy regulations are set to take effect, making it easier for users to opt out of personalized advertising. This change could pose an additional challenge to Meta's primary revenue engine.