Meta's Spending Looks Alarming, Until You See What's Behind It

Core Insights - Meta Platforms is experiencing a significant decline in profits, leading to some investors abandoning the stock, which may be a costly mistake due to the company's strong position in AI [1][3] - The company reported a 26% year-over-year revenue increase to $51.2 billion, surpassing analysts' expectations of $49.6 billion, driven by an 8% growth in its user base to 3.54 billion [5][6] Financial Performance - Operating expenses rose 32% to $30.7 billion, outpacing revenue growth, which raises concerns among investors [6] - Diluted earnings per share (EPS) fell 83% to $1.05, prompting some investors to sell their shares [6] Contributing Factors - A one-time, non-cash tax charge of $15.93 billion due to new legislation significantly impacted profitability; excluding this charge, earnings would have increased 20% year-over-year to $7.25 [8] - Increased investments in AI, including higher employee compensation and infrastructure costs, are expected to yield long-term benefits despite short-term financial strain [9][10] AI Investments and Future Outlook - Meta's AI investments are already showing positive results, with a 10% increase in time spent on Threads and a 5% increase on Facebook due to improved recommendation systems [10] - The company has narrowed its capital expenditure outlook for the year to $70 billion to $72 billion, indicating a strategic focus on AI [12] Valuation and Investment Opportunity - Meta's stock price decline post-financial report is viewed as a buying opportunity for long-term investors, with the stock trading at 24 times earnings, which is considered attractive compared to peers [13]