Meta Platforms Stock Drops 17% YTD: Should You Buy, Sell or Hold it?

Meta Platforms META shares have dropped 17.4% year to date (YTD), underperforming the broader Zacks Computer & Technology sector’s appreciation of 15.7%. The decline can be attributed to investor concerns over the rapidly rising cost of META’s AI ambitions. In the second quarter of 2026, revenues increased 28% year over year to $60.8 billion, but costs and expenses surged 55% year over year to $42 billion. Operating income declined 8%, while operating margin contracted sharply to 31% from 43% reported in the year-ago quarter. The company raised the lower end of its 2026 expense outlook and now expects total expenses between $165 billion and $169 billion.

Meta’s massive infrastructure spending has further pressured investor sentiment. In second-quarter 2026, capital expenditures jumped to $31.08 billion from $17.01 billion in the year-ago period, while free cash flow plunged to just $784 million from $8.55 billion. The company now expects 2026 capital expenditures of $130-$145 billion as META builds servers, data centers and network infrastructure to support AI. The balance sheet quality also deteriorated, with long-term debt increasing to $83.66 billion as of June 30, 2026, from $58.74 billion at the end of 2025. Meta issued nearly $25 billion of long-term debt during the first half of 2026. So, what should investors do with the META shares? Let’s find out.

Q3’26 Earnings Estimate Revisions Negative for META

The Zacks Consensus Estimate for third-quarter 2026 earnings is pegged at $6.61 per share, down 2.9% over the past 30 days, suggesting an 8.8% decline from the figure reported in the year-ago quarter. 
 

Meta expects total revenues between $61 billion and $64 billion for the third quarter of 2026. The consensus mark for third-quarter 2026 revenues is pegged at $63.17 billion, suggesting 23.3% growth from the figure reported in the year-ago quarter.

META’s AI Integration Boosts Ad Engagement Amid Challenges

META’s focus on integrating AI into its platforms — Facebook, WhatsApp, Instagram, Messenger and Threads — is driving user as well as advertising engagement. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.6 billion daily users. Instagram reached 2 billion daily active users and Threads surpassed 500 million monthly active users in the second quarter of 2026. AI recommendations that deliver higher quality and more relevant content are expected to drive engagement.  Instagram time spent increased at a double-digit rate in the second quarter of 2026, while Facebook video time grew 9% globally, supported by better recommendations.

Meta’s Large Language Models-powered advertising systems are improving conversion efficiency. Recent advancements generated an 8.3% increase in Facebook ad clicks and a 15.7% uplift in conversions, suggesting AI investments are already strengthening the company’s core advertising engine. The company has completed the global expansion of Threads ads and is expanding advertising capabilities in WhatsApp Status. This will allow Meta to monetize engagement across a broader portion of its ecosystem.

However, Meta’s significant dependence on advertising as a revenue source has been a concern for investors. The company faces significant competitive pressure from Snap SNAP for the attention of younger demographics, while in advertising, Amazon AMZN and Alphabet GOOGL remain major competitors.  Reels continues to monetize at a lower rate than Feed and Stories, creating headwind. META shares have underperformed Amazon and Alphabet YTD but outperformed Snap. Shares of Amazon and Alphabet have returned 12.9% and 8.9%, respectively, while Snap has dropped 35.4%.

META Stock’s Price Performance

Image Source: Zacks Investment Research

The biggest challenge remains converting enormous AI investments into sustainable returns. Meta acknowledges that AI and Reality Labs investments are reducing cash flow, operating margins and profitability and expects spending to continue increasing. Reality Labs reduced 2025 operating profit by approximately $19.19 billion, and 2026 Reality Labs operating losses are expected to remain similar to 2025 levels.

META Shares Trade at a Discount

Meta shares are trading at a discount, as suggested by the Value Score of B. 

In terms of the forward 12-month price/sales, META is trading at 4.85X, lower than the broader sector’s 6.37X and Alphabet’s 8.31X. However, Meta shares are trading at a premium compared with Amazon and Snap, shares of which are trading at 3.10X and 1.22X, respectively.  

META Stock’s Valuation

Image Source: Zacks Investment Research

Conclusion

META’s prospects are supported by AI-driven improvements in engagement, advertising efficiency and monetization across Instagram, Facebook, Threads and WhatsApp. The company’s massive user base and expanding AI capabilities could strengthen the advertising business and create additional revenue opportunities over time. However, sharply rising infrastructure spending, weak free cash flow, higher debt levels, persistent Reality Labs losses and intense competition remain key concerns. The recent decline has made META’s valuation relatively attractive. Still, continued earnings estimate reductions and uncertainty over returns from AI investments limit near-term upside. Investors may therefore prefer to wait for clearer evidence of improving margins and AI-related returns before becoming more aggressive on META shares.

Meta currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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