Meta Platforms Is Considering a Pivot to ‘Closed’ AI Models. What Does That Mean, and Why Don’t META Stock Investors Like It?

Meta Platforms’ (META) stock dipped slightly this week following a report that the company is making a significant pivot in its artificial intelligence strategy.

The report from Bloomberg says that Meta is developing a closed, monetizable AI model with the codename “Avocado” that could incorporate tech from Chinese companies, including Alibaba Group (BABA).

Such a plan would be a shift in Meta’s AI strategy, which has long favored open-source models such as Llama. Such decentralized control encourages innovation across the community but provides Meta with limited opportunities to commercialize it. The closed approach is also used by competitors OpenAI and Alphabet (GOOG) (GOOGL).

With Meta’s AI strategy seemingly at a crossroads, should investors be encouraged or concerned about investing in the company right now?

The parent company of Facebook, Instagram, WhatsApp, Messenger, and others, Meta Platforms is the biggest social media company in the world. Now sporting a market capitalization of $1.6 trillion, the Menlo Park, California, company has 3.54 billion daily active users among its family of apps.

Shares in the company are up 10% in 2025, which trails the 16% year-to-date (YTD) performance of the S&P 500 ($SPX). Among the Magnificent Seven cohort of stocks that’s been dominating the stock market this year, Meta Platforms has been one of the weaker performers, trailing the year-to-date performance of all but Amazon (AMZN).

META stock currently trades at a price-to-earnings ratio of 28.5, making it more expensive than its historical average. The company’s five-year P/E mean is 24.9.

META is also a relatively new dividend stock, having initiated a quarterly payout in early 2024. The stock’s dividend yield is 0.3%, or $0.525 per share each quarter. The next payout will be Dec. 23 for shareholders of record on Dec. 15.

Meta Platforms has a strong earnings history, consistently beating analysts’ expectations, and the third-quarter report was no exception. Revenue of $51.24 billion was up 26% from a year ago. Earnings per share of $7.25 beat expectations of $6.61 per share.

The revenue was helped by the company’s improvements in advertising, in which impressions increased by 14% from a year ago, and the average price per ad increased 10% from last year.

“We are at an exciting point for our company, where we have continued runway to improve our core services today as well as the opportunity to build new AI-powered experiences and services that will transform how people engage with our products in the future,” Chief Financial Officer Susan Li said. “We expect the set of investments we are making within our ads and organic engagement initiatives next year will enable us to continue to deliver strong revenue growth in 2026, while our progress on AI models and products will position us to capitalize on new revenue opportunities in the years to come.”

Meta issued guidance for fourth-quarter revenue to be in the range of $56 billion to $59 billion. Full-year capital expenditures, which include its efforts to build data centers and other AI infrastructure, will be $70 billion to $72 billion for the full year.

Meta reported a one-time, non-cash income tax charge of $15.93 billion from the implementation of the One Big Beautiful Bill Act but said it expects the law to reduce its federal cash tax payments for 2025 and in future years.

Analysts are very bullish on META stock, giving it a consensus “Strong Buy” recommendation. Of 55 analysts who cover the stock, 44 have “Strong Buy” ratings and three others have “Moderate Buy” recommendations. The other eight analysts recommend holding the stock, and none suggest selling.

Price targets hint at rapid growth ahead for META stock—the mean price target of $842 is 29% higher than the current stock price, and the low target of $685 is an increase of 5% from current levels. The most aggressive target of $1,117 would be a whopping 72% increase.

In summary, Meta Platforms’ stock has been underperforming this year, but analysts are nearly unanimous in their opinions that better days are ahead.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com