Meta Platforms stock: why the bear market isn’t over yet

Meta Platforms stock price has dropped into a technical bear market after falling by over 25% from its highest point last year.

It dropped to $592 on Thursday, its lowest level since November 24.

Meta Platforms stock dips amid elevated AI spending 

Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, has tumbled in the past few months, a drop that has pushed its market capitalisation from nearly $2 trillion to $1.5 trillion today.

The ongoing Meta Platforms stock crash is mostly because of the ongoing retreat of some of the biggest technology companies.

For example, Microsoft stock has dropped to $372 from the all-time high of $550. Amazon has dropped to $207 from the record high of $258. 

A major reason for the ongoing Meta Platforms stock crash is that the company has boosted its spending in the artificial intelligence industry.

In its recent results, the company estimated that it would spend $135 billion in capital expenditure this year. 

Most of this spending will be to support the Meta Superintelligence division.

This spending will be much higher than the $72 billion it spent last year.

The spending is part of the ongoing AI capital expenditure among the top companies in the industry, which is expected to jump to over $650 billion this year.

In addition to this capital expenditure, the company is spending billions of dollars on wages.

According to the WSJ, costs tied to employee stock awards cost about $42 billion last year.

It recently reached a $27 billion deal with Nebius, a top NVIDIA-backed neocloud company.

The challenge, however, is that Meta Platforms' AI tools are not gaining market share against other platforms like ChatGPT, Claude, and Anthropic.

Meta has become a bargain 

Despite its challenges, Meta Platforms is doing well, as evidenced by the recent financial results.

The financial results showed that its revenue jumped to $59.88 billion in the fourth quarter, up from $48 billion in the same period last year.

The company’s net income jumped to over $22.76 billion from over $20.8 billion. Its earnings-per-share rose to $8.88 from $8.02 a year earlier.

This growth is happening as its role in the digital advertising space continues to grow. 

Analysts expect the company's growth to continue in the foreseeable future.

The average estimate is that its revenue will rise by 31% this quarter to over $55.45 billion.

They hope that its annual revenue will jump to $251 billion, up by 24% YoY. It will then make over $296 billion next year.

The company is now aiming for its market capitalisation to jump from the current $1.5 trillion to $9 trillion.

Senior executives, including the Chief Technology Officer (CTO), Chief Product Officer, and Chief Financial Officer, will make millions of dollars once the company achieves that valuation.

Meta Platforms has also become highly undervalued, as it trades at a forward P/E ratio of 19 and a forward PEG multiple of 0.89.

These multiples are much lower than those of the S&P 500 Index.

Meta stock price technical analysis 

META stock chart | Source: TradingView 

The three-day chart shows that the Meta stock price has slumped in the past few months, moving from a high of $795 in August last year to the current $592.

It has dropped below the 23.6% Fibonacci Retracement level at $626.

The stock has also moved below the Supertrend indicator and the 50-day Exponential Moving Average (EMA). Also, the stock has formed a head-and-shoulders pattern.

Therefore, the most likely scenario is where the stock continues falling, potentially to the 38.2% Fibonacci Retracement level at $622.

A drop below that level will point to more downside, potentially to the 50% retracement level at $438.

In the long-term, however, the stock will likely bounce back, potentially to the all-time high.