Billionaire Dan Loeb Just Changed His Mind on This Incredible Artificial Intelligence (AI) Stock

Key Points

• Loeb said he largely divested his hedge fund of its positions in "Magnificent Seven" stocks by mid-April.

• Stellar first-quarter earnings results may have convinced him to add this AI leader back to the Third Point portfolio.

• The company's recent financial results should give investors even more confidence in the stock.

• 10 stocks we like better than Meta Platforms ›

Billionaire Dan Loeb is one of the most-followed activist investors on Wall Street. His hedge fund, Third Point, manages $21.1 billion, with around one-third of that invested in a public equity portfolio.

He is supported by a team of over 60 people, but ultimately, Loeb is in charge of the moves in Third Point's portfolio. He said that by mid-April, he had sold out of most of the "Magnificent Seven" stocks, taking gains off the table early in 2025 before the market crashed amid tariff concerns.

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By the end of the first quarter, he'd sold off significant pieces of his stakes in Microsoft and Amazon while completely eliminating positions in Tesla, Apple, and Meta Platforms (NASDAQ: META). But Loeb was a buyer of most of those again in the second quarter, including Meta. Here's why Loeb may have changed his mind on the AI leader.

Image source: Getty Images.

Why did Loeb sell Meta in the first place?

Loeb's decision to sell Meta shares seemed mostly to have been driven by its rising valuations. Shares of Meta reached a forward P/E ratio of 26.5 during the first quarter.

"We realized gains earlier in the year through opportunistic sales near the highs in Meta," Loeb said in his first-quarter letter to Third Point investors.

It's very likely that Loeb was concerned about that valuation as uncertainty grew about President Donald Trump's trade policies. Meta's core advertising business relies on business confidence. If businesses aren't confident in their ability to source their products or in the consumer's willingness to spend, they're going to be less willing to pay up for advertising on Meta's apps.

Meanwhile, Meta is investing heavily in artificial intelligence infrastructure. Management said it plans to spend $60 billion to $65 billion on capital expenditures this year, up from $39 billion in 2024. Given the growing uncertainty about what the near-term returns on those investments might be, Loeb took an opportunity to take some money off the table.

Tiptoeing back in

Third Point ended the second quarter with 150,000 shares of Meta. While that only accounted for about 1.5% of its public equity portfolio at the time, it was still enough to make it one of the hedge fund's biggest purchases in the quarter.

So, what led to the reversal?

It may have been the strong first-quarter earnings report Meta delivered at the end of April. The company saw strong revenue growth, expanded its operating margin, and expressed a lot of confidence about the next quarter and beyond. It raised its capital expenditure plans as well.

Management also made it clear that Meta's investments in artificial intelligence are already paying off. That assertion was supported by growth in both ad impressions and average price per ad, which it boosted by consistently improving its content and ad recommendation algorithms. The long-term potential for AI to make it easier for marketers to advertise on Meta's properties and for it to expand advertising opportunities remains a key focus of the company's spending.

But Meta shares are once again trading at a high valuation. In fact, the stock now carries a higher earnings multiple than it did when Loeb and his team sold the stock in the first quarter.

Should retail investors buy Meta Platforms now?

Meta's first-quarter results gave investors like Loeb confidence in the stock, and its second-quarter results were arguably even better.

Revenue growth accelerated, and its operating margin expanded once again. The operating margin gains are perhaps the most impressive facet of the narrative, as management has warned about an increase in depreciation expenses from all of its AI investments.

But those AI investments may be the differentiating factor between Meta and other digital advertising platforms. Meta is able to offer marketers higher returns on their ad spending, even while charging them premium prices. As a result, Meta grew its revenue faster than smaller social media platforms did last quarter.

That should give investors confidence that its AI strategy is already paying off. Combine that with the long-term potential for AI to transform the business, and it makes sense for the stock to trade at a premium price. With shares currently trading at just over 27 times expected forward earnings, it may still be underpriced. We won't know whether or not Loeb took profits once again until November, when Third Point files its next 13F disclosure with the Securities and Exchange Commission. But for most retail investors, Meta shares are worth buying or holding onto right now.

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Adam Levy has positions in Amazon, Apple, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Microsoft, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.