Meta Stock Jumps Off Support on Analyst Upgrade, but Is It Enough to Shift Trend?
The challenges Meta Platforms encountered in the first few months of 2026 are a sign of investors' growing apprehension that shifting...
Quick overview
- Meta Platforms faces investor skepticism as it shifts focus from the metaverse to artificial intelligence, raising concerns about ongoing spending pressures.
- Despite a recent stock rebound following a 'Buy' recommendation from Jefferies, broader market sentiment remains cautious due to unresolved structural risks.
- The company's significant losses in Reality Labs and rising operating expenses have led to deteriorating profitability, even as revenue growth appears strong.
- Meta's transition to AI dominance is fraught with uncertainty, as investors demand clearer evidence of sustainable profitability amidst high capital investments.
Live META Chart
[[META-graph]]
The challenges Meta Platforms encountered in the first few months of 2026 are a sign of investors’ growing apprehension that shifting billions from the metaverse to artificial intelligence would put more strain on spending rather than result in long-term profitability.
A Fragile Rebound After a Rough Start to 2026
Meta Platforms has stumbled into 2026 under a cloud of skepticism, with investors increasingly questioning whether the company’s evolving strategy truly improves its long-term earnings profile. Shares endured a sharp pullback of nearly 20% from recent highs before rebounding roughly 5.5% today, helped by a renewed “Buy” recommendation from Jefferies.
While the bounce provided short-term relief, it did little to erase broader concerns. The recovery looks more like a technical reaction to oversold conditions than a decisive shift in market conviction, particularly as Meta remains well below peak valuations reached during last year’s AI-driven rally.
Analyst Support Offers Temporary Relief, Not a Clear Reset
Jefferies reiterated its Buy rating on Meta, maintaining a $910 price target that implies approximately 45% upside from recent levels. The firm argues that the recent selloff has created an attractive risk-reward profile, especially with Meta trading at a valuation discount to Alphabet—roughly an eight-turn gap on forward P/E multiples.
However, analyst optimism will not be enough to fully stabilize sentiment. Meta continues to trade far below the Street’s most bullish target of $1,117, underscoring the widening divergence between long-term upside projections and near-term investor caution.
For many market participants, the valuation discount reflects not opportunity but unresolved structural risk.
From Metaverse Retreat to AI Escalation
Meta’s strategic retreat from the metaverse has been framed as a course correction, yet it has also revived uncomfortable questions about capital discipline. The company recently announced layoffs affecting roughly 10% of staff within Reality Labs, along with the closure of multiple internal studios and the sidelining of several acquired products.
While these moves aim to rein in costs, they also serve as a tacit acknowledgment that the metaverse bet failed to deliver meaningful returns. Since 2020, Reality Labs has accumulated losses exceeding $70 billion—a figure that continues to weigh heavily on investor perception.
Crucially, the savings are not flowing back to shareholders. Instead, they are being redirected into an even more capital-intensive race: artificial intelligence.
AI Spending Raises Familiar Red Flags
Meta’s AI ambitions are expansive, touching everything from ad targeting to content creation and enterprise messaging. That ambition was reinforced by the acquisition of Manus, a Singapore-based AI startup reportedly valued at more than $2 billion.
While Manus’ rapid growth and $100 million annualized revenue run rate attracted praise, the deal also reignited concerns about Meta’s spending instincts. Investors have seen this pattern before—aggressive acquisitions justified by future potential, followed by prolonged periods of elevated costs.
The market response has been notably restrained, suggesting that investors are no longer willing to reward ambition without near-term financial clarity.
Technical Damage Reinforces the Bearish Tone
From a technical perspective, Meta’s chart continues to flash warning signs. After peaking near $796 in early October, the stock broke down through multiple support levels, including the $600 zone. However the 200 daily SMA (purple) which acted as support twice in 2025 on the daily chart held the ground again and this week we’re seeing a rebound from the 200 SMA.
Meta St0ock Chart Daily – The 200 SMA Held As Support
While the 100-week simple moving average (green) has recently provided temporary support, the rebound has lacked follow-through. The 50-week moving average (yellow) has turned into resistance, rejecting recent recovery attempts and now sellers are threatening to break below the 100 SMA.
Meta St0ock Chart Weekly – The 100 SMA Is Under Threat
Strong Revenue, Weak Earnings Quality
At first glance, Meta’s fundamentals appear resilient. Revenue grew 26% year-on-year in the most recent quarter, supported by stable ad demand and high engagement across Facebook, Instagram, and WhatsApp.
Yet beneath the surface, profitability trends are deteriorating. Earnings per share declined meaningfully, pressured by rising operating expenses and a significant tax adjustment. More troubling for long-term investors, margins continue to compress as AI infrastructure costs accelerate.
This growing imbalance between revenue growth and margin sustainability has become a central point of concern.
Cost Growth Continues to Outpace Comfort Levels
Meta’s total expenses increased by more than 30% year-on-year, driven by data-center expansion, AI compute investments, and ongoing losses at Reality Labs despite recent cuts. While operating income remains positive, the trajectory suggests a business still struggling to convert scale into operating leverage.
In a higher-rate environment, markets are increasingly intolerant of business models that rely on indefinite reinvestment without a clear payoff. Meta’s valuation multiple leaves little room for error if cost discipline fails to materialize.
Investor Sentiment Turns More Demanding
The broader market backdrop has shifted. Investors who once rewarded bold, long-dated innovation are now prioritizing execution, cash flow visibility, and margin stability. Meta’s stock performance reflects this change, marked by sharp rallies followed by equally sharp corrections.
Despite its dominant platforms and vast user base, Meta is no longer being treated as a default AI winner. Instead, it is being scrutinized as a company that has repeatedly traded profitability for ambition.
A Strategic Pivot Without a Margin Safety Net
Meta’s transition from metaverse experimentation to AI dominance may ultimately prove successful, but the path forward remains costly and uncertain. Both strategies require sustained capital investment, long development cycles, and patience—resources the market is becoming less willing to provide.
The company’s challenge is no longer proving technological relevance. It is convincing investors that its next phase will deliver disciplined, durable profitability rather than another prolonged spending cycle.
Conclusion: Confidence Deferred, Not Restored
Meta’s rebound offers a reminder of the company’s underlying strength, but it does not resolve the deeper issues weighing on the stock. Until management can clearly demonstrate that AI investments will enhance margins rather than erode them, skepticism is likely to persist.
For now, Meta enters 2026 as a company caught between ambition and accountability—still powerful, still profitable, but no longer granted the benefit of unquestioned optimism.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
Save