Is Meta undervalued? AI ambitions meet an attractive valuation

Meta has spent the past two years convincing investors that artificial intelligence is worth billions in additional spending. Now, it is trying to prove those investments can generate a new source of revenue. It is increasingly positioning itself as one of the world's largest AI infrastructure providers, building the computing power needed to compete with cloud leaders such as Amazon, Microsoft and Alphabet.

By Yazeed Abu Summaqa | @Yazeed Abu Summaqa

Meta trades at roughly 21.7 times forward earnings, below Alphabet and Amazon.
The company is expanding beyond advertising by building AI infrastructure that could be rented to third parties.
The valuation remains close to Microsoft's despite Meta's heavy AI investment cycle.

Meta's valuation still stands out

For a company investing so aggressively in artificial intelligence, Meta doesn't trade at the premium many investors would expect.

Its forward price-to-earnings ratio sits around 21.7, compared with roughly 25 for Alphabet and 29 for Amazon. Microsoft trades close to 20.7, putting it broadly in the same range despite operating one of the world's largest cloud businesses.

Those comparisons matter because all four companies are racing to build AI infrastructure. Yet Meta continues to trade at a discount to some of its closest rivals, suggesting the market still views it primarily as an advertising company rather than an emerging AI platform.

Source: Ycharts

Meta wants a share of the AI infrastructure market

Advertising continues to generate most of Meta's revenue, but the company's ambitions now extend well beyond social media.

Over the past two years, Meta has invested aggressively in data centres, AI chips and its own large language models. The goal is no longer just to improve Facebook, Instagram and WhatsApp. Management is also exploring how that infrastructure could become a business by offering computing capacity and AI models to outside developers.

That would place Meta in direct competition with Amazon Web Services, Microsoft Azure and Google Cloud, three companies that have turned cloud computing into a highly profitable source of recurring revenue.

Reports of a potential $10 billion computing agreement with Anthropic provide an early indication of what that strategy could look like. Although no deal has been confirmed, the discussions suggest Meta sees commercial AI services as a meaningful growth opportunity rather than simply a way to strengthen its advertising business.

Can AI justify a higher valuation?

For much of the past year, investors have focused on how much Meta is spending on artificial intelligence. The conversation is now beginning to shift toward what those investments could eventually earn. If AI mainly improves advertising, the benefits are likely already reflected in today's valuation. The bigger opportunity lies in turning that infrastructure into a business capable of generating its own revenue.

A successful AI platform would give Meta a second engine of growth alongside advertising, creating a more diversified business with recurring enterprise revenue. That would also make comparisons with traditional cloud providers increasingly relevant and could eventually support a higher valuation than the market assigns today. Whether Meta can reach that point remains to be seen, but the investment case is becoming less about the size of its AI spending and more about whether those billions of dollars can evolve into a profitable business of their own.

Technical outlook

Meta's broader trend remains firmly positive, but upside momentum has slowed after the rally to the record high around 780. Rather than extending the advance, the stock has entered a consolidation phase, with lower highs forming beneath a descending trendline while buyers continue to defend the rising trendline and the 126-day moving average near 608.

The current price of around 643 leaves Meta trading near the centre of that range, reflecting a market that has yet to decide in its next direction. Buyers have been unable to reclaim the previous highs, while sellers have also failed to force a meaningful break below support. That balance suggests the recent move is more of a pause within the broader uptrend than a change in trend.

The next level to watch is 690. A sustained break above that resistance would invalidate the recent sequence of lower highs and indicate that bullish momentum is beginning to return. If buyers clear that barrier, attention is likely to shift back towards the record high near 780.

On the downside, 620-625 remains the first line of support, with stronger technical backing around 608, where the rising trendline and the 126-day moving average converge. This area has repeatedly attracted buyers and continues to define the longer-term bullish structure. As long as it holds, the broader trend remains constructive.

Scenarios ahead

The bullish scenario depends on a decisive move above 690 while keeping the 620-608 support zone intact. A breakout from the current consolidation would increase the likelihood of another test of the 780 high. A close above that level would place Meta back into price discovery and reinforce the longer-term bullish trend.

The alternative scenario develops if support between 620 and 608 fails to hold. A break below the rising trendline and the 126-day moving average would signal that the recent consolidation is evolving into a deeper correction, exposing the 560-580 region as the next area where buyers may look to regain control.

Even in that case, the longer-term uptrend would remain intact, although the market would likely require a longer period of consolidation before attempting another move towards record highs.