Is Meta Platforms a Bargain or a Value Trap?

Meta Platforms (META +3.12%) is one of the cheapest big tech stocks on the market. It trades for a dirt cheap price tag compared to its peers, but the question investors must determine is whether it has earned this markdown or if there's a real value investment here.

Let's take a look at both sides and see which side holds more weight.

Image source: Getty Images.

Bear case: Meta's AI investments are worth nothing

Meta's track record for successful endeavors in cutting-edge tech fields isn't the greatest. A few years ago, the metaverse was all the rage, and the company changed its name from Facebook to Meta Platforms to signal its shift in focus. However, the metaverse never panned out, and Meta dumped billions of dollars into a project that barely made any money.

History looks to be repeating itself, as Meta is now spending hundreds of billions of dollars on artificial intelligence (AI) computing infrastructure. The issue here is that Meta is pursuing an open-source model (though pundits may argue it's not truly open source) that is free to use. Spending billions to give away the product for free doesn't sound like a smart business move, which is why there is significant bearish sentiment around the stock.

Furthermore, if the AI build-out turns out to be a bust, the maintenance costs on the infrastructure it's building could eat into future profits. As a result, the bears would argue that Meta should trade at a significant discount until it can prove it can make money from its AI initiatives.

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NASDAQ: META

Meta Platforms

Today's Change

(3.12%) $18.19

Current Price

$601.09

Key Data Points

Market Cap

$1.5TMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.Market cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day's Range

$581.79 - $603.50

52wk Range

$520.26 - $796.25

Volume

819.1K

Avg Vol

17.2M

Gross Margin

81.94%

Dividend Yield

0.36%

Bull case: Meta's infrastructure can be converted into cloud infrastructure, and its ad business is rock-solid

In the bull case, Meta's investors would argue that it can always turn all that AI computing capacity into cloud infrastructure if it decides to move on from its AI dreams. This is a proven business model that several tech giants are already participating in, and it wouldn't be much of a leap for Meta to stand that up.

As for AI monetization, Meta is working to bring AI glasses to the public, bringing AI from the computer to the real world. allowing it to interact and contextualize the world around it. That product would likely have a subscription model, allowing Meta to monetize its AI product.

Lastly, even if AI flops, Meta has a rock-solid advertising business from its social media platforms to fall back on. This is where the lion's share of revenue now comes from, and it delivered 33% revenue growth from Meta during the first quarter.

From those arguments, I'm firmly in the bull camp, as there is a lot of engaging sentiment surrounding Meta's stock that just doesn't hold up when you project out a few years. Meta has answers to nearly every bear case, allowing long-term bulls to overcome the short-term bearish sentiment on Meta's stock.