Meta shares are under pressure amid fears about heavy AI spending. Roger McNamee, co-founder of Elevation Partners, recently said in a program on CNBC that Zuckerberg is trying to create an “illusion” that the company is positioned well in the AI race. He thinks the company is losing the race and criticized Zuckerberg’s latest manifesto on AI. Meta is down 23% over the past year.
Is Meta (NASDAQ:META) really losing the AI race? Let’s look at the strengths and weaknesses of the stock.
The bull case
The core ad business is still firing. In Q2, ad revenue rose 27% year over year, ad impressions grew 14%, and average price per ad climbed 12%. New recommendation systems lifted Facebook ad clicks 8.3% and conversions 15.7%. Advantage+, its AI ad tool, reached a $75 billion annual run rate, and over 9 million small businesses now use at least one Meta AI tool.
Meta says buyers are offering multiples of what it paid for compute. If its own products can’t absorb all that infrastructure, it can rent capacity out in an AWS-style move.
Photo by Chris Liverani on Unsplash
The bear case
Meta is spending heavily and investors want to see the returns or at least a clear path to returns on this spending. Total expenses jumped 55% in Q2 while revenue grew 28%. Operating margin sank from 43% to 31%. CapEx guidance for fiscal 2026 sits at $130 billion to $145 billion, up from roughly $70 billion the prior year. Free cash flow collapsed to just $784 million, the lowest since 2022. Management gave no framework for 2027 spending, which is exactly what spooks investors.
Growth is cooling. Q3 guidance implies about 22% growth, down from 28% in Q2. Daily active people grew just 3.4%. Monetization and ad impression growth both decelerated. Bears see diminishing returns on all that AI CapEx.
McNamee’s question is fair. Can Meta turn its monster CapEx into real returns, or is Zuckerberg just building another Reality Labs? Meta Platforms, Inc. (NASDAQ:META) has the cash to keep swinging. But for how long can Zuckerberg convince investors about expected returns is the question.
While we acknowledge the risk and potential of META as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than META and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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