Meta Stock Continue To Underperform: What Is Going On?

Meta’s stock (NASDAQ: META) has fallen 9.5% year-to-date to $588.62 while the Nasdaq 100 surged 17.5%, marking a stark 27-percentage-point underperformance despite posting some of the strongest fundamental results in the company’s history.

The Meta Platforms stock price sits down at $587.58, down 9.5% since the start of 2026, representing a dramatic divergence from the broader technology sector. The Nasdaq 100 index has gained 17.5% over the same period, leaving Meta trailing, an the unusual position for the stock. The weakness intensified following the company’s first-quarter earnings report on April 29, when shares sold off sharply in after-hours trading despite revenue and earnings beats across nearly every metric.

The disconnect between Meta’s operational performance and the stock price has become one of 2026’s most notable market anomalies. While the company delivered approximately 33% year-over-year revenue growth to reach roughly $56 billion in the first quarter, with operating margins exceeding 40%, markets focused almost exclusively on a single line item: capital expenditure guidance.

Why is Meta Stock down?

Meta’s first-quarter 2026 results showcased a business firing on all cylinders. The Family of Apps segment, comprising Facebook, Instagram, WhatsApp, and Messenger, generated record advertising revenue with growth in the mid-to-high twenties percentage range. Management attributed much of this acceleration to artificial intelligence-enhanced ad targeting systems that have dramatically improved return on ad spend for advertisers.

Operating margins in the core business reached approximately 40%, demonstrating the leverage inherent in Meta’s advertising platform. The company generated over $115 billion in operating cash flow during 2025, providing substantial resources for both shareholder returns and strategic investments.

However, the capital expenditure guidance overshadowed these achievements. Meta had previously indicated 2026 capital spending would range between $115 billion and $135 billion, already representing a significant increase from the roughly $72 billion spent in 2025. During the first-quarter earnings call, management signaled that spending could materially exceed even the high end of that range, with first-quarter capex running at approximately 35% of revenue, or roughly $20 billion for the quarter alone.

The spending is concentrated in artificial intelligence infrastructure: data centers, advanced computing hardware, networking equipment, and related facilities. Meta is part of a broader wave of AI investment across big technology companies, with Amazon, Google, Meta, and Microsoft collectively planning approximately $725 billion in AI-related capital expenditure for 2026, up roughly 77% from 2025 levels.

Reality Labs, Meta’s virtual and augmented reality division, continues to post substantial operating losses approaching $19 billion annually on revenue of only $2 billion to $3 billion. First-quarter 2026 results showed Reality Labs revenue slipping slightly year-over-year, with management citing lower-than-expected Quest headset sales. The company expects 2026 Reality Labs losses to remain at similar levels to 2025.\n\nIn May 2026, Chief Executive Mark Zuckerberg announced plans to eliminate approximately 8,000 positions, primarily to redirect resources toward artificial intelligence infrastructure investments. The move came despite strong revenue and profitability, signaling a strategic reallocation rather than financial distress.

On the regulatory front, Meta faces multiple challenges across jurisdictions. In the United States, the company confronts youth-safety and social media harm lawsuits with several trials scheduled throughout 2026. In Europe, Meta recently reached an agreement to allow AI competitors access to WhatsApp for a limited period to avoid more stringent interim measures under the Digital Markets Act.

Analyst Raise

Against this backdrop, Arete Research upgraded Meta shares to Buy from Neutral late last week, raising its price target from $614 to $735. The firm’s thesis centers on three key elements: Meta’s flexible cost structure, growing high-margin subscription revenue from services like Meta Verified, and internal artificial intelligence progress.

Arete’s most provocative argument frames Meta as a potential “neocloud with excess compute” suggesting the company could eventually monetize its massive AI infrastructure by offering compute services to external customers, similar to how Amazon Web Services emerged from Amazon’s internal infrastructure buildout. This would transform AI capital expenditure from a cost center into a strategic asset with multiple revenue streams.

The upgrade note emphasized that Meta retains the ability to modulate spending across both capital expenditure and operating expenses, providing management with levers to protect margins if market conditions deteriorate or if AI monetization takes longer than expected.

What Next For META?

The next leg for Meta remains very much up in the air. You have questions about whether revenue growth can maintain its current 20%-plus trajectory even as the company’s revenue base expands and macroeconomic conditions normalize. Then, can artificial intelligence infrastructure investments translate into visible monetization through improved advertising performance, new AI agent products, or external compute services?

If Meta can demonstrate that AI spending will plateau or that returns on invested capital are materializing faster than expected, sentiment could shift rapidly. Conversely, if spending continues to escalate without corresponding revenue acceleration, the stock could face additional pressure.

The regulatory environment represents another wildcard. Adverse rulings in youth-safety litigation or more restrictive data usage requirements in Europe could constrain the very AI and advertising capabilities that justify current spending levels. On the other hand, if Meta successfully navigates these challenges without material business model changes, a longstanding overhang could lift.