Meta's Revenue Growth Is Impressive, but This Remains a Big Problem

Meta Platforms (NASDAQ: META) is a social media giant and one of the most valuable companies in the world, with a market cap of around $1.5 trillion. When it reports earnings, as it did recently, expectations are high. Not only does the company need to show growth, but investors need to be convinced that it's on a strong path forward.

While one half of that equation looks to be solid, with its financials looking strong and Meta's growth rate being fairly high, investors may be more concerned about how it will do in the long run, as it invests heavily in not only the metaverse but also artificial intelligence (AI).

Image source: Getty Images.

Meta raised its guidance for capex this year

Meta released its latest quarterly results last week, on April 29. Its growth rate for the quarter ending March 31 was solid, coming in at 33%. But what likely spooked investors was that its guidance for capital expenditures, also known as just capex, would also be higher than previously projected. Now, the company expects capex for the year to be within a range of $125 billion and $145 billion. Previously, it was projected to be within $115 billion and $135 billion.

The company blames the increase on "higher component pricing this year and, to a lesser extent, additional data center costs to support future year capacity." Investors have been concerned with high AI spend in the past, and news of those costs likely being higher than expected simply wasn't good news, which is why, despite the seemingly strong quarter, shares of Meta have fallen in recent days.

Is the social media stock a cheap buy today?

Since the start of the year, Meta's stock has declined by 8%. While it's not at its 52-week low of $520.26 just yet, it is getting closer to that level; on Friday, it closed at just under $609. Currently, Meta's stock trades at a price-to-earnings multiple of 22, which is a fair bit lower than the S&P 500's average earnings multiple of 26.

Meta's stock is cheaper than it was several months ago, but you need to be aware of the risks and question marks surrounding the business. While it's doing extremely well these days and its growth is impressive, it may not always be that way, especially if it needs to change its business practices to improve child safety. Whether AI proves to be a huge growth opportunity or just another money pit like the metaverse is also a huge unknown. That's why I'd take a wait-and-see approach with the stock.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.