Others fear my greed? Meta (META.US) post-market does not buy it. Analysts point out that the capital expenditure of billions is just planning for the future.

After Meta (META.US) released its third-quarter financial report, the market saw a trend of selling off stocks. Financial analyst Deep Value Investing believes that the market reaction was somewhat excessive, and attributed the stock price decline to capital expenditures (capex) and stock buyback policies. The company's fundamentals remain strong, with the expenditure on computing power being reasonable. It is expected that Meta's stock price will consolidate around $600 for the next few weeks, and then have the potential to retest historical highs within 3-6 months. The analyst believes that there is a significant disconnect between Meta's fundamentals and stock price trend following the company's third-quarter financial report for 2025. Prior to the report, he had a positive outlook on the stock, attributing it to the strong progress in AI infrastructure development during the quarter. With a clearer prediction of the year-end situation from the CFO, capital expenditures may reach the mid-point of the expected range. However, since the last analysis, Meta's stock price has dropped by 15.6%. He believes that this is an overreaction from the market. Investors seem to be overly focused on the increase in infrastructure spending and the slowing pace of stock buybacks, while ignoring the strong growth in operating cash flow this year. In the third quarter, Meta's revenue increased by 26% year-on-year to $51.24 billion, with a fourth-quarter guidance of $56-59 billion. Additionally, key metrics in the advertising business continue to improve (exposure increased by 14%, average ad prices rose by 10%), with overall advertising revenue growing by 26%. In terms of valuation, Meta is currently the lowest valued mega-cap tech company with a forward P/E ratio of only 25.6 times. He believes that arguments questioning the usefulness of Meta's computing power are unfounded. Meta's computing demand comes from various aspects: Llama big model training, ecosystem operations, and providing content and advertising services to core users. As long as the advertising business continues to grow at a rate of over 20%, these capital expenditures are justified. In addition, the company added $40 billion in third-party computing contracts in the last quarter, which means that even with redundant computing power, external sales can be achieved with strong market demand. Overall, the analyst remains optimistic about Meta. It is expected that the stock price will consolidate around $600 before potentially retesting historical highs in the next 3-6 months. Reasons behind the stock sell-off after the third-quarter report Like most mega-cap tech companies, Meta's capital expenditure growth relies mainly on operating cash flow and cash reserves for financing. The latest 10-Q filing shows that the company's operating cash flow reached $79.6 billion over the past three quarters (an increase of 26%). During this period, property and equipment purchases amounted to $48.3 billion, meaning that capital expenditures accounted for approximately 61% of operating cash flow. In comparison, Microsoft Corporation had a ratio of about 43% in the last quarter, and Alphabet Inc. Class C had a ratio of 44% over the past three quarters. The analyst states that the market is panicking because Meta has invested a large amount of operating cash flow into capital expenditures, and this ratio may increase next year. In the recent earnings call, the company raised its 2025 capital expenditure guidance from $66-72 billion to $70-72 billion. Additionally, management expects the absolute increase in capital expenditures for 2026 to be significantly higher than in 2025. CFO Susan Li said in the meeting: "Therefore, we currently anticipate a significant year-over-year increase in the absolute amount of capital spending in 2026 over 2025. We also anticipate that the year-over-year growth rate in 2026 total expenses will be significantly higher than in 2025, driven primarily by infrastructure costs, including increased expenditures on cloud services and depreciation." The analyst believes that this statement has made some investors concerned, leading to the stock sell-off after the financial report. In terms of stock buybacks, the company has repurchased $26.32 billion worth of stock over the past three quarters, with a remaining authorization of $25.03 billion. The issue is that the company slowed down its buyback pace in the last quarter. As shown below, the number of shares repurchased continued to decline from July to September, with no repurchases made in September. This could be an early signal that the company may pause stock buybacks next year and redirect cash into capital expenditures. This is the main reason behind the panic selling after the financial report. As for the one-time non-cash income tax benefit of $15.93 billion arising from the valuation allowance on U.S. deferred tax assets due to the new U.S. "Optional Minimum Tax for Corporations" (part of the BBB law), it is not a major concern. This factor led to Meta's effective tax rate rising to 87% in the third quarter, resulting in significantly lower-than-expected net profit (diluted EPS of $1.05 under GAAP, much lower than the market consensus of $6.67). Excluding this one-time impact, adjusted EPS was $7.25, significantly exceeding Wall Street's expectations. In terms of liquidity, as of the end of the last quarter, the company's cash and marketable securities reached $44.45 billion. Additionally, after the financial report, Meta announced the largest bond issuance plan in history: raising up to $300 billion through multiple tranches over a term of 5-40 years. Furthermore, the 10-Q filing showed that the company signed a significant third-party cloud services agreement in the last quarter: "In October 2025, we entered into a multi-year third-party cloud computing agreement, with a total amount of about $40 billion." Unfortunately, the company did not disclose the partner for this $40 billion agreement, but if it was driven by the Hyperion data center project, the analyst stated that he would not be surprised by the scale of this agreement. Reasons for maintaining an optimistic outlook A common criticism of Meta is that it lacks a cloud business. While this is true, Meta has a strong advertising business, which requires sufficient computing power to operate. Therefore, the argument that "Meta's computing power is not for internal use" cannot be a reasonable basis for bearish views on the company. The company's computing power is mainly used for the ecosystem, especially in content recommendations and ad displays. As shown below, the momentum of advertising revenue growth remains strong and has been accelerating since the beginning of the year. Overall, ad exposure increased by 14% year-on-year, and average ad prices also rose by 10% year-on-year. It is worth noting that despite the increase in U.S. unemployment rates this year, advertising pricing has remained resilient. In terms of revenue, third-quarter revenue for 2025 reached $51.24 billion, a 26% year-on-year increase. Management expects fourth-quarter revenue to be $56-59 billion. Wall Street predicts that Meta's revenue growth will continue to exceed 20% year-over-year in the next two quarters before slowing down. The slowdown in growth may be related to the deteriorating macroeconomic situation in the U.S., especially with October seeing a record high number of job cuts in over 20 years. This will be a risk factor to watch closely. Risk warnings and valuation analysis The analyst stated that he will closely monitor various signals that may lead to a decline in the return on capital expenditures. Specifically, if revenue growth fails to keep up with the growth in expenditures/capital expenditures in 2026, the company's profit margin and free cash flow may be squeezed. In terms of financing, the $300 billion bond issuance is a double-edged sword. On one hand, it will inject more funds into data center construction; but on the other hand, the interest payments to bondholders will increase interest expenses, thereby diluting profit margins. Finally, the ratio of capital expenditures to operating cash flow will continue to be tracked. As mentioned earlier, Meta has the highest ratio of this kind among mega-cap tech companies, so if capital expenditures increase without synchronized growth in operating cash flow, it could put further downward pressure on the stock price. The stock price decline after the third-quarter report has made Meta currently the mega-cap tech company with the lowest forward P/E ratio. In comparison to mega-cap tech companies like Amazon.com, Inc. that have cloud businesses, Wall Street's growth expectations for Meta are lower, but the forward P/E ratio is significantly lower at 25.6 times. Overall, with the panic selling bottoming out in the fourth quarter, the company's valuation will be readjusted. At that time, consideration may be given to buying out-of-the-money (OTM) call options expiring in 6-12 months. Future outlook From the perspective of stock price trends, this stock presents a prominent contrarian investment opportunity. With a beta coefficient of 1.26, the "big short" thesis of Berri shorting Palantir and NVIDIA Corporation causing market panic, coupled with recent statements from the CFO of OpenAI about financing data center infrastructure construction through innovative means, the stock sell-off has been further magnified. The analyst believes that the stock is currently oversold, with an attractive valuation and a potential for strong double-digit growth in the future. While the company will increase capital expenditures next year, the returns from the ecosystem business are expected to exceed these investments in the long term. The analyst reiterates a "strong buy" rating for Meta.