Is Meta Stock a Buy or a Sell as ‘AI Bubble’ Chatter Grows?
Ever since the artificial intelligence (AI) mania began in 2023, there have been voices suggesting that it is a bubble similar to the dot-com era. The chatter gained traction last year as many companies were struggling to justify their massive AI capex with commensurate revenues.
DeepSeek’s low-cost AI model, released earlier this year, only lent credence to the “AI bubble” narrative, as the Chinese startup claimed to have developed its AI model for a fraction of the billions of dollars that U.S. tech giants spend on theirs.
However, AI stocks managed to get over the pessimism, and Nvidia (NVDA), which is the bellwether of the AI trade, rose to record highs and became a $4 trillion behemoth despite losing out on the China business.
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Meanwhile, over the last couple of months, the chatter about AI being a bubble has gained traction. Joining the ranks are Federal Reserve Chair Jerome Powell, Goldman Sachs (GS) CEO David Solomon, OpenAI CEO Sam Altman, Meta Platforms (META) CEO Mark Zuckerberg, and Amazon (AMZN) founder Jeff Bezos, who have warned about a possible bubble in AI, in one form or the other.
While Powell was quite subtle and talked about “unusually large amounts of economic activity through the AI buildout,” Bezos was perhaps the most forthcoming and said that there’s an “industrial bubble” in AI.
To be sure, concerns over an AI bubble are not unfounded, particularly in the startup space where companies are commanding eye-popping valuations. For instance, OpenAI was valued at $500 billion in a recent transaction that provided liquidity to employees, while Elon Musk’s xAI is reportedly valued at $200 billion.
The literal scramble for AI talent, in which Big Tech companies, particularly Meta, have poached talent at eye-popping compensation, also raises fears about a bubble.
Praetorian Capital has done some number crunching, which shows that the so-called hyperscalers could collectively spend $400 billion on data centers this year, which would depreciate at roughly $40 billion annually. However, where things get ugly is that the depreciation is twice what these companies are expected to get as revenues (not profits) from AI this year.
Higher depreciation would mean that tech companies would feel pressure on their bottom lines. Meta, for instance, expects total expenses to grow by between 20% and 24% this year and cautioned about “meaningful upwards pressure” on 2026 expenses. The company expects higher depreciation expense on growing capex to be the biggest driver of expense growth, followed by employee compensation.
Meanwhile, Meta is witnessing the benefits of AI and in Q2 2025, its revenue grew 22% year-over-year, shattering estimates, which Zuckerberg attributed to “AI unlocking greater efficiency and gains across our ads system.”
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Specifically, he said that the AI-powered recommendation model helped drive nearly 5% more ad conversions on Instagram while the corresponding number for Facebook was 3%. While the growth might not yet justify the massive capex toward the technology, there are signs that things are moving in the right direction.
Notably, companies like Meta and Google (GOOGL) have the advantage of a captive user base, to which they can offer AI services, and during the Q2 2025 earnings call, Zuckerberg said that Meta AI now has over a billion monthly active users.
Another pillar of Meta’s AI strategy is hardware, and it is betting on glasses to be the next computing platform. The company is not alone in that thought process, as Apple (AAPL) and Alphabet are also working on smart glasses.
Business AI is another key pillar of Meta’s AI strategy, and Zuckerberg believes that businesses “will soon have a business AI just like they have an email address, social media account, and website.”
Along with AI, Meta has several other growth drivers, including the monetization of its WhatsApp user base. The company will also eventually be able to start monetizing Threads even as that won’t be a significant near-term driver.
While the froth in the unlisted AI ecosystem is quite palpable, I don’t see much euphoria, apart from a few pockets, in the listed space. Meta, for instance, trades at a forward price-earnings multiple of 25.84x, which is nowhere near bubble territory.
I continue to believe that Meta is among the best AI plays, and the company’s core digital ad business continues to do well, with AI only supercharging its growth. While the stock could still be prone to any possible AI meltdown amid bubble fears, I continue to stay invested and find the current levels attractive enough to trigger fresh purchases.
On the date of publication, Mohit Oberoi had a position in: META, GOOG, AAPL, AMZN, NVDA. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
