Meta Platforms has dropped about 27% from its most recent high as legal setbacks and heavy AI spending weigh on results. Three prior sell-offs of similar or greater size were all followed by a full recovery, and the stock's current valuation has one Motley Fool analyst leaning toward a rebound.
Meta Platforms is down about 27% from its most recent high, weighed down by legal and regulatory issues and mixed financial results as heavy artificial intelligence spending pressures margins, profits, and free cash flow. History offers a guide to what could happen next.
Meta's past sell-offs all ended in recovery
Between mid-February and early April of 2025, Meta's stock declined about 31%, partly due to macroeconomic concerns. It recovered to brand-new highs by August 2025. From late 2021 to late 2022, a longer sell-off cut Meta's shares by about 75%, driven by declining users and heavy spending on its metaverse ambitions. The stock again recovered, though it took longer this time.
Meta also dropped alongside the broader market during the COVID-19 crash in early 2020, but that decline did not last long either. In each of these episodes, Meta's shares fell more than 27% before eventually bouncing back and performing well.
Bears point to legal risk and AI spending
Bears note that Meta's earnings and free cash flow declined in the second quarter as large AI investments have not yet paid off as much as hoped. A judge also ruled that thousands of lawsuits over Meta's allegedly addictive social media design and its impact on children can move forward, a decision that could pose a significant long-term risk to the company.
Bulls see AI paying off and shares fairly priced
Bulls counter that Meta's AI investments have already improved engagement on the platform while streamlining the ad-launch process for advertisers. The company is also reportedly considering a cloud computing business that would rent out excess AI computing capacity to other corporations. Meanwhile, the stock trades at about 19.9 times forward earnings, versus an average of 21.4 times for information technology stocks.
That valuation gap sits alongside Meta's history of pivoting away from costly bets, including its retreat from aggressive metaverse spending.
Source: The Motley Fool
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