From Opex Discipline to CapEx Aggression
The “Year of Efficiency” in 2023/2024 was characterized by headcount reductions and the flattening of organizational structures. This phase successfully restored investor confidence and drove the stock price recovery. However, 2025 marked the beginning of a new phase: the “AI Arms Race.”
Unlike the Metaverse pivot of 2021, which was viewed skeptically as a drift away from core competencies, the current pivot to AI is directly synergistic with Meta’s core business. The “Meta Superintelligence Labs” are not just building abstract AGI; they are powering the recommendation algorithms that keep users glued to Instagram and the ad-ranking engines that maximize ROI for advertisers. Nevertheless, the costs are staggering. The firm raised its full-year 2025 CapEx guidance multiple times, landing at $70–$72 billion, a 70% jump from the previous year.
The “Founder Mode” Paradigm
A critical qualitative factor influencing institutional sentiment is the governance structure of Meta. Analysts at Rothschild Redburn have upgraded the stock to “Buy” with a $900 price target, explicitly citing CEO Mark Zuckerberg’s “founder mode” as a long-term positive. This term describes a leadership style where the founder, insulated by dual-class share structures, ignores short-term Wall Street pressure to pursue generation-defining technological shifts.
While “founder mode” allows for bold bets, it also introduces principal-agent risk. Investors are effectively passengers on Zuckerberg’s vessel. With reports that he is pursuing AI investments “regardless of financial cost,” the Q4 earnings call will be scrutinized for any signs of fiscal guardrails. The concern is that without external checks, the pursuit of Llama 4 and beyond could lead to a period of “profitless prosperity,” where revenue grows but free cash flow evaporates into GPU clusters.
The Valuation Disconnect
Despite the stock’s 12.74% rise in 2025, Meta underperformed the Nasdaq 100 (which gained 21%). This underperformance has created a valuation anomaly. According to KeyBanc Capital Markets, Meta currently trades at its widest price-to-earnings (P/E) discount to Alphabet since 2022, with a gap of approximately 7x.
Current P/E: ~29.29x
PEG Ratio: 4.12
Gross Profit Margins: ~82.01%.
This discount suggests that the market is pricing in a severe “capital penalty”, essentially assuming that the billions being poured into Nvidia H100s and Blackwell chips will have a lower Return on Invested Capital (ROIC) than the core software business.
The Q4 earnings report is the company’s opportunity to refute this assumption by demonstrating how AI is already accretive to ad revenue.
