Meta Platforms (NASDAQ:META) has struggled to keep pace with the broader market this year, a rare sight for a “Magnificent 7” tech stock. Despite short-term challenges, Cathie Wood recently added 33,837 META shares to her ARK Invest portfolio, valued at over $21 million. Wood sees the current dip as a prime risk-reward opportunity, driven by Meta’s long-term artificial intelligence (AI) initiatives and strategic investments.

Meta Platforms Stock Faces Short-Term Headwinds

Meta Platforms has already demonstrated measurable returns on AI investments, particularly in improving advertising efficiency. However, the company’s ongoing capital expenditures have sparked comparisons to past missteps, including the metaverse venture. Adding to investor concern was a $16 billion tax bill reported in the latest earnings release, which limited net income growth despite strong revenue performance. This has created downward pressure on META stock, presenting a buying opportunity for long-term investors like Cathie Wood.

About META Stock

Meta Platforms is best known for its globally popular social media platforms, including Facebook, WhatsApp, and Instagram. The company generates most of its revenue from advertising, leveraging its extensive user base. Over the past year, META stock returned 5.45%, underperforming the S&P 500 Index ($SPX), which posted a 12.88% gain. META remains the fifth-largest weighting in the index.

Despite the recent dip, the stock’s valuation is reasonable but not cheap. META trades at a forward price-to-earnings (P/E) ratio of 27.82x, about 22% above its five-year average of 22.81x. However, among the Mag 7 stocks, this is still one of the lowest forward P/E ratios. Forward price-to-sales (P/S) ratios are similarly modest relative to peers, highlighting potential upside if growth continues.

Cathie Wood’s Bullish Thesis

Cathie Wood’s confidence in META stock is driven by projected earnings growth. Excluding Nvidia (NASDAQ:NVDA), Meta is expected to achieve 20.3% earnings growth next year, outpacing its peers. Gross margins of 82% also exceed Nvidia’s 70%, underscoring Meta’s efficiency. Current market headwinds may be an ideal entry point for investors seeking long-term gains, according to Wood.

Meta Platforms Reports Strong Earnings

On October 29, Meta Platforms reported better-than-expected earnings, with EPS of $7.25 versus the estimated $6.69 and revenue of $51.24 billion exceeding forecasts of $49.41 billion. Guidance for Q4 anticipates revenue of $57.5 billion at the midpoint.

Despite these positive results, some investors remain cautious due to rising AI investments, which could increase capital expenditures to at least $70 billion, up from previous projections of $66 billion. CEO Mark Zuckerberg maintains that these investments are a positive long-term driver, likely to enhance profits over time.

Meta is also expanding its consumer hardware lineup. The Meta Ray-Ban Display Glasses, launched in September at $799, quickly sold out. Q4 will mark the first full quarter with these products in the market, and Zuckerberg has expressed confidence in their potential.

Analyst Perspectives on Meta Platforms Stock

Meta Platforms is closely followed on Wall Street, with 55 analysts providing coverage. Of these, 43 recommend a “Strong Buy.” RBC Capital recently reiterated a “Buy” rating with a price target of $810, implying 26.5% upside. The mean target among all analysts is $842.31, suggesting 32% potential gains, while the highest estimate of $1,117 indicates 75% upside from current levels.

Conclusion: Is META Stock a Buy?

Cathie Wood’s recent purchases signal a strong belief in the long-term potential of Meta Platforms stock. Despite short-term challenges like rising taxes and heavy AI spending, the company remains financially robust with high margins and promising growth.

Investors considering META stock should weigh current market volatility against the company’s potential for outsized returns in AI and advertising. The combination of strong fundamentals, hardware innovation, and a supportive analyst consensus may make this an opportune moment to consider adding Meta Platforms stock to a long-term growth portfolio.

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