It has been a rollercoaster year for the "Magnificent Seven" stocks, the name given to tech titans Nvidia, Apple, Microsoft, Amazon, Alphabet, Tesla, and Meta Platforms (NASDAQ: META). Of the group, only Meta and Tesla are in the red for the year, down 1.2% and 18.8%, respectively, through market close on Sept. 10. Both have their fair share of issues, but Meta is a struggling stock that seems to have plenty of upside from its current level.
And if history is any indication of what's possible, you may regret not investing while it's having an off year. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.
For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » No single issue is dragging down Meta's stock; it's a combination of factors, with the two main ones being its AI spending and its ongoing regulatory issues. This year, Meta is slated to spend between $130 billion and $145 billion on AI-related projects, such as building data centers and other infrastructure.
In the second quarter (Q2), it spent $31 billion, which, for perspective, is more than all but 26 public companies have made in profits in their past four quarters combined. Meta's heavy spending weighed on its free cash flow, which fell from $13.2 billion in Q1 to $1.7 billion in Q2. As expected, investors are rarely happy when a company's spending slashes its free cash flow by so much.
META Capital Expenditures (Quarterly) data by YCharts Regarding regulatory concerns, Meta recently reached a proposed settlement of up to $18 billion due to claims that its apps were purposely addictive and contributed meaningfully to teen mental health decline. The court case had loomed over Meta for years, and although $18 billion isn't cheap, it's much less than what the company could have faced in a full trial. California, Colorado, Kentucky, and New Jersey had sought penalties up to $1.4 trillion.
All things considered, Meta has probably never been happier to spend $18 billion. One of Meta's first attempts to address investor concerns over its AI spending is the recently announced release of its personal AI agent, Muse. While companies like ChatGPT's creator, OpenAI, and Claude's creator, Anthropic, have pushed their enterprise and coding tools heavily, Muse is more consumer-focused.
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