Meta Platforms stock is underperforming the market this year, ending the week at $577, down by 27% from its highest point last year. Its valuation has fallen from $2 trillion to $1.47 trillion. The decline is attributed to ongoing investments in artificial intelligence and fears of shareholder dilution, as the company plans to spend $135 billion this year, up from previous guidance of $115 billion. Last year, it spent $72 billion on capex.

Valuation metrics drop

The stock retreat has pushed Meta's trailing price-to-earnings ratio to 20, its lowest level since February 27 2023. The ratio peaked at 32 in October last year. The forward price-to-earnings ratio has slipped to 17, below the technology sector average of 33 and its five-year average of 22. The forward price-to-earnings-to-growth ratio has dropped to 86 cents, compared to the sector median of 1.2.

Funding and AI competition

Meta is considering raising about $85 billion to fund capital investments, following Alphabet's move to raise $80 billion through debt and equity. Concerns persist regarding the return on investment for AI spending. Meta AI holds a smaller market share compared to competitors like ChatGPT, Claude, and Google Gemini. A recent report indicated that Grok, Perplexity, DeepSeek, and Meta AI command less than 5% market share.

Analysts remain bullish

Despite the decline, analysts maintain a bullish outlook. The average estimate among analysts is $834, up by 45% from the current level. RBC Capital maintained its target at $810, while Rosenblatt kept its target at $1,015. Wedbush boosted its rating from neutral to outperform, and Mizuho hiked its target to $850.

The most recent earnings showed revenue jumped by 33% to $56.3 billion, while net income soared by 61% to $26 billion. Analysts estimate revenue will jump by 25% this year to $237 billion and exceed $282 billion next year.

Technical risks

Technical indicators suggest further downside risk. The weekly chart shows the stock has slumped below the 23.6% Fibonacci Retracement and the 50-week moving average. A multi-month head-and-shoulders pattern, a bearish reversal sign, has formed. The MACD lines continue to fall, suggesting the stock may drop to $500.

Meta Platforms, Inc. is attempting to boost employee morale following recent layoffs and organizational shifts by improving office perks, a move that prompted an executive at Elon Musk’s X to jokingly recruit its engineers. X product executive Nikita Bier responded to news of Meta’s improved snack budget by publicly inviting "neglected Meta employees" to apply for web and data engineer roles, promising to match or exceed any snack offer. While the post was characterized as a joke, it included a link to a Software Engineer position with an annual compensation range of $180,000 to $440,000, highlighting the intensifying competition for AI talent.

Meta Chief Technology Officer Andrew Bosworth had announced the improvements to office snacks and beverages earlier this month as part of a broader effort to address morale. This follows a major restructuring in May where Meta cut roughly 10% of its global workforce and reassigned about 7,000 employees to AI-related initiatives. CEO Mark Zuckerberg acknowledged in an internal memo that the company has "made mistakes" during this rapid shift toward AI but stated that no additional companywide layoffs are anticipated this year.

Workforce and Management Adjustments

Meta’s restructuring has led to significant changes in management structures. The company plans to reduce overly broad manager oversight responsibilities after some AI teams reportedly operated with contributor-to-manager ratios as high as 50-to-1. To strengthen collaboration, Meta is increasing spending on team-building efforts, including larger budgets for offsite events and a companywide hackathon scheduled for July.

AI Talent War and Financial Metrics

The exchange between the companies underscores the fierce competition for engineering talent as major technology firms race to expand artificial intelligence capabilities. X, part of Musk’s xAI and a wholly-owned subsidiary of Space Exploration Technologies Corp., has been actively recruiting engineers to support its AI ambitions. SpaceX recently completed a record-breaking IPO.