Shares of Meta Platforms (META 3.83%) faced a decline this week after news emerged regarding a delay in the launch of its latest custom artificial intelligence (AI) model.
As reported by The New York Times, the model, dubbed Avocado, did not meet internal benchmarks when evaluated against top models from competitors such as Alphabet and OpenAI. There are indications that the company might temporarily license Alphabet’s Gemini model to enhance its AI offerings while addressing the performance shortfall.
Given that Meta’s stock has been valued highly due to its perceived AI leadership, this news naturally unsettled some investors. However, a broader perspective reveals a more positive reality: the core business is thriving, and management has prepped for this very scenario.
This raises the question: could this dip in stock price represent a buying opportunity?
The Delay is Not a Deal-Breaker
While the postponement of a flagship AI model may seem unfortunate, it’s not catastrophic for Meta. A representative from the company indicated that the upcoming model will continue to show significant advancements.
Investors should not be entirely shocked if the timeline for achieving advanced AI capabilities extends. Meta’s CEO, Mark Zuckerberg, anticipated this possibility two quarters ago, providing contingencies related to computational expansion during an investor call last October.
A Robust Core Business with High Capacity Needs
The primary concern surrounding Meta’s substantial expenditures is whether the company is building beyond its needs. For 2026, Meta projected capital expenditures between $115 billion and $135 billion, which represents a significant portion—around 8%—of its overall market capitalization. If AI development is delayed, is this expenditure wasted?
Not necessarily. The truth is that Meta’s core business—targeted advertising on platforms like Facebook, Instagram, and WhatsApp—is highly reliant on computation. And this sector is currently flourishing, evidenced by a 24% year-over-year revenue increase in Q4 2025 to $59.9 billion, largely driven by an 18% boost in ad impressions.
Is Now a Good Time to Invest?
Ultimately, I believe the delay in the AI model is not as detrimental for investors as the recent stock drop indicates. Meta is a profitable company with a sustainable core business model. Although the company is investing heavily, it possesses a robust cash reserve of $81.6 billion and an established history of monetizing user engagement effectively.
However, it’s essential to consider valuation factors. The current stock valuation implies confidence in both its advertising business and future AI projects. Such a valuation leaves little margin for error, especially if growth in the core business starts to wane while capital expenditures remain high.
Fortunately, Meta has forecasted more rapid revenue growth in Q1, with a revenue guidance midpoint suggesting a 30% year-over-year increase. Therefore, I don’t foresee immediate concerns regarding a slowdown. While the company’s growth will attract rigorous scrutiny as long as capital expenditures stay elevated, for those inclined to overlook short-term fluctuations and accept the risks tied to a significant technological transition, this dip presents an appealing opportunity to initiate a position in the stock.
