Meta Stock Sinks 32%, but Analysts See a 38% Rebound

Meta Platforms (META) stock has come under pressure, declining about 32% from its 52-week high. Meta also ranks among the weaker-performing “Magnificent Seven” stocks in 2026. The decline reflects growing investor concern over the scale of Meta’s artificial intelligence (AI) investments and whether those expenditures will translate into sufficient returns.

The recent pullback, however, does not undermine Meta’s long-term investment case. The company’s core advertising business remains strong, while AI is increasingly being used to improve engagement, ad targeting, and campaign performance.

Meta’s Q3 Guidance Raises Investor Concerns

Meta’s latest quarterly results highlighted the tension between strong underlying business performance and rising AI-related costs.

Although the company delivered strong top-line growth in Q2, its third-quarter revenue outlook came in below Wall Street estimates. Meta expects revenue of $61 billion to $64 billion, with a midpoint of $62.5 billion. The weaker-than-expected guidance amid heavy AI spending weighed on investor sentiment.

Advertising Business Remains the Core Strength

Despite concerns about AI spending, Meta’s underlying advertising business continues to demonstrate strong momentum. In the second quarter, Meta’s Family of Apps generated $59.4 billion in advertising revenue, representing a 27% year-over-year (YoY) increase. Meta’s ad impressions grew 14%, while average price increased. This suggests advertisers continue to see value in the platform and are willing to increase spending as Meta’s targeting and recommendation systems improve.

Meta’s advertising scale gives it a solid advantage. It can fund massive AI investments from an already highly profitable core business. The company’s advertising platform continues to benefit from strong user engagement, expanding ad inventory and improving monetization. At the same time, AI is becoming increasingly integrated into content recommendations and advertising products.

That combination could allow Meta to absorb near-term margin pressure while strengthening its competitive position over the longer term.

AI Is Improving Both Engagement and Monetization

Meta’s AI investments are already influencing the economics of its core platforms. Time spent on Instagram increased at a double-digit rate YoY, primarily because of improvements to Feed and Reels recommendations. Facebook also benefited from stronger video engagement, with global video watch time increasing 9% and more than 10% in the U.S. and Canada.

Higher engagement matters because it gives Meta more opportunities to serve advertisements. More importantly, better recommendation algorithms can improve the relevance of both content and advertising, potentially increasing conversion rates and the value of each impression.

Meta’s Advantage+ Could Drive Further Advertising Growth

Meta is using AI to improve monetization. Its Advantage+ suite of AI-powered advertising tools has surpassed a $75 billion annual revenue run rate. The scale of this business indicates that advertisers are already adopting Meta’s AI-powered products at a meaningful rate.

The opportunity could be significant among small businesses. More than 9 million small businesses are already using at least one of Meta’s AI-powered creative tools. Meta’s newer end-to-end creative solutions could further simplify creating and managing advertising campaigns.

For Meta, this could expand the addressable advertiser base while increasing spending from existing customers.

Analysts’ META Stock Price Target Points to Significant Upside

Wall Street remains bullish on META stock despite the recent selloff. Analysts maintain a “Strong Buy” consensus rating, while the average price target of $750.37 implies approximately 38% upside from the stock’s recent closing price.

The recent pullback and analysts’ price target suggest that much of the risk associated with Meta’s elevated AI spending is already priced in its share price.

The Bottom Line

Meta’s near-term earnings and free cash flow could face pressure as capital expenditures rise. However, the company’s advertising business remains robust, AI is strengthening engagement and monetization, and Meta has the financial resources to continue investing aggressively.

With analysts projecting roughly 38% potential upside from current levels, the recent decline has made Meta’s risk-reward more attractive.