NASDAQ:META Q4 Earnings Crush Expectations—Why Shares Fell to $670
Strong Earnings But Market Sentiment Remains Mixed for NASDAQ:META
NASDAQ:META recently delivered an impressive fourth-quarter report, boasting robust revenues of $48.39 billion, marking a significant 21% jump year-over-year. Earnings per share (EPS) soared to $8.02, decisively surpassing Wall Street consensus estimates by approximately $1.29 per share. Despite these undeniably strong fundamentals, investor reaction was surprisingly muted, pulling the stock down to around $670—a puzzling 15% retreat from its recent high of $789 seen earlier in February.
To understand why investors aren't fully buying into Meta’s latest success, we need to dig deeper into several underlying factors including the company’s aggressive spending on AI infrastructure, ongoing regulatory scrutiny, the competitive advertising landscape, and key technical market dynamics affecting NASDAQ:META shares.
NASDAQ:META’s Ambitious AI Gamble: Is $65 Billion Too Much?
At the heart of Meta’s strategic pivot is an eye-watering capital expenditure plan of between $60 and $65 billion for AI-related infrastructure projects in 2025. CEO Mark Zuckerberg emphasized during the earnings call that these investments aren’t merely defensive; instead, they're designed to redefine user engagement and advertising precision across Meta’s vast ecosystem—including Instagram, WhatsApp, and Facebook. This is indeed ambitious, but investors must consider whether the potential returns justify the short-term margin compression Meta will experience.
The justification for the scale of spending comes from Meta's recent success in the AI domain. Their open-source AI initiative, Llama, is rapidly gaining traction among developers due to its flexibility and adaptability. Unlike competitors such as OpenAI, which currently dominate consumer-facing AI products, Meta’s strategy seems to revolve around enabling creators and developers first, thus indirectly boosting content on Meta platforms. Yet, such an enormous capex figure—almost a third of its projected $188 billion revenue in 2025—raises valid questions around the payoff timeline.
However, what mitigates investor concern here is Meta's track record of generating strong returns on invested capital (ROIC). After adjustments, Meta’s current ROIC hovers around an impressive 30%, comfortably outpacing its estimated 9.2% cost of equity. This margin ensures that Meta’s massive investments are value-accretive in the long run, even if short-term margins may tighten from the current stellar operating margin of nearly 50%.
Technical Levels to Watch Closely on NASDAQ:META
From a purely technical standpoint, NASDAQ:META shares sit at a critical juncture. The stock recently fell under its key gamma exposure pivot at approximately $667.50. As options market dynamics suggest, trading below this threshold could cause increased dealer hedging, amplifying short-term selling pressure. Conversely, should META swiftly reclaim this crucial pivot, the positive gamma flow could accelerate upward momentum, targeting resistance near $685 and ultimately $750.
Options traders seem acutely aware of these scenarios, with significant open interest at the $670 and $700 strikes. Traders favoring bullish strategies may find comfort in bull-call spreads targeting a breakout above $685, while those seeking defensive exposure might prefer iron condors structured around these critical strike zones.
Dark Pool Activity Reflects Investor Uncertainty in NASDAQ:META
Institutional sentiment via dark pool trades has been notably cautious, with recent buy ratios frequently dipping below 1.0—a clear indication that large-scale traders have been trimming positions or cautiously managing risk exposure. Notably, dark pool buy ratios in late February hovered as low as 0.30, indicating aggressive institutional selling at peak price levels near $780. While more recent dark pool trades reflect moderated selling (with buy ratios stabilizing around 0.70), sentiment remains guarded.
For META bulls, this institutional caution may actually represent potential pent-up demand; should sentiment shift positively in response to macroeconomic stability or reduced regulatory pressure, institutional buying could quickly reaccelerate, creating substantial tailwinds.
Regulatory Risks Cast a Long Shadow Over NASDAQ:META
One critical element weighing heavily on Meta’s current valuation is persistent regulatory uncertainty, especially emanating from Europe. European markets contributed about 23%—or roughly $38 billion—of Meta’s trailing twelve-month revenues. With stringent EU data privacy regulations continuing to challenge Meta’s business model, potential negative impacts cannot be ignored.
Should Europe increase regulatory restrictions or even partially limit Meta’s operational freedom, revenues could theoretically decline by as much as 20% per year over the next three years from that region alone. Such a scenario, though severe, still leaves Meta’s intrinsic value at roughly $535 per share, significantly above worst-case market pricing. Thus, even severe regulatory constraints do not completely undermine the value thesis but undeniably add volatility.
NASDAQ:META Valuation: Overpriced or Premium Justified?
From a valuation perspective, using discounted cash flow (DCF) analysis, NASDAQ:META's intrinsic valuation ranges widely depending on assumptions. At a conservative long-term growth rate of about 3%, intrinsic valuation hovers around $500 per share, suggesting current pricing at $670 might be somewhat expensive. Yet, given Meta’s consistent outperformance—averaging 22.5% ROIC over the past decade and expected EPS growth approaching 14% annually through 2029—a more aggressive but arguably justifiable growth projection yields intrinsic valuations exceeding $700 per share.
Thus, valuation concerns depend heavily on one's view of Meta’s growth sustainability. If investors believe in Meta’s ability to sustain high single-digit long-term growth fueled by AI and digital advertising innovations, today's price may actually represent an attractive entry point.
NASDAQ:META’s Competitive Landscape and TikTok Opportunity
Meta’s competitive landscape offers additional complexity. Recent regulatory challenges facing rival platform TikTok provide potential upside, as any operational disruption at TikTok would likely drive user and advertiser spending back to Meta platforms. Indeed, investor optimism briefly surged after the U.S. Supreme Court upheld legislation opening the door to a potential TikTok ban. Any definitive action restricting TikTok would immediately boost NASDAQ:META’s ad revenue potential significantly.
Still, Meta must continue improving its advertising precision to fully capitalize on this potential windfall. While Q4 ad revenue per user showed a promising uptick, maintaining this momentum against competitors like Amazon and Google requires aggressive technological advancements—further underscoring Meta’s decision to commit massive capex into AI-driven ad infrastructure.
Investor Action: Should You Buy NASDAQ:META Now?
Given the multitude of factors—robust earnings growth, aggressive AI infrastructure investment, mixed technical signals, cautious institutional sentiment, regulatory uncertainties, insider confidence, and complex competitive dynamics—the decision whether NASDAQ:META is a buy at $670 depends significantly on individual investor time horizons and risk appetites.
If you are bullish on Meta’s AI investments ultimately driving superior long-term earnings growth—and comfortable absorbing short-term volatility—then this recent pullback is a compelling opportunity. Conversely, investors wary of regulatory risks and short-term margin compression might prefer to wait for greater clarity or a deeper discount below technical support levels around $640–$650.
Personally, given Meta's unmatched profitability, resilient user engagement, strategic foresight into AI and advertising innovation, coupled with insider confidence, my view leans bullish. At $670, NASDAQ:META represents an attractive buying opportunity, particularly for investors willing to endure near-term volatility for potentially substantial medium-to-long-term upside.
