Meta Platforms (NASDAQ:META) shares really imploded on Thursday, as investors grew concerned about the hefty AI spending as well as the rare miss on earnings. Undoubtedly, a drop of more than 11% in a single day is quite out of the ordinary when it comes to a Magnificent Seven stock, especially one that wasn’t exactly expensive going into a quarterly reveal.

Still, the broad market wants to see more when it comes to the heavy spenders on AI. And while AI demand still seems alive and well, it’s not hard to imagine that all this “AI bubble” talk is getting to some Meta shareholders, especially since Meta and its CEO, Mark Zuckerberg, do not seem to be pulling any punches when it comes to AI.

Add the $16 billion tax hit into the equation as well as continued cash burn from the Reality Labs division, and it’s all too easy to throw in the towel on shares of Meta Platforms after an unexpectedly noisy and less-than-ideal quarter, to say the least. While the third quarter looked nasty on the surface, I do think that those who dig deeper into the numbers may find that there’s nothing to fear about the Meta quarter and its trajectory other than the widespread and perhaps unwarranted AI bubble fears themselves!

Meta actually had a decent quarter when you get through the noise

To put it simply, there were several nuances that investors must consider before deciding on what to do with their shares of the social-media, AI, and metaverse titan. The biggest shock has to be the one-time tax charge. Nobody likes such negative surprises when a quarter is revealed, and while the firm could have done a better job of warning investors beforehand, I do think that there’s really no easy way to rip the band-aid off. 

When you take the massive tax charge out of the equation, the numbers were quite robust. And while higher expenses also weighed on margins, I think investors have little reason for concern, especially since Meta Platforms is well on track to monetize its AI innovations sooner than most.

So, if you want a company poised to profit from the AI revolution, I think it makes sense to consider buying Meta Platform shares after a double-digit percentage decline, which, I believe, is overblown and unwarranted. Additionally, I believe Zuckerberg will be proven right in being aggressive with AI spending in these early innings, especially considering the risks associated with underinvesting in the technology.

As always, there’s a balance to make, and perhaps skewing towards the aggressive side might be the better way to go if there is no AI bubble. If there is a bubble in AI, though, I’m not even sure Meta Platforms shares will be hit as hard while it’s trading for close to 26 times forward price-to-earnings (P/E).

I don’t know about you, but that figure doesn’t scream bubble, especially when you consider the magnitude of profits flowing in. Can operating margins take a hit as a result of excessive spending? Most definitely. But the spending could pave the way for greater growth and margins in the long term.

Why I’m not at all concerned about Meta’s AI spend

While overspending is a growing risk, especially as Meta brought on some of the best AI researchers in the world with obscenely high pay packages, investors must also consider the AI monetization opportunities. And, of course, investors should know by now that Meta is agile enough to restructure if it finds out later on that its aggression was overdone and is in need of a correction.

Just like during the pandemic-era overspend, Meta can easily course correct with more selective hiring and, of course, layoffs. With Meta laying off 600 from its AI division, I’d argue that Meta has already made a minor course correction. And that leads me to believe that fears surrounding overspending on AI are completely unwarranted.

Like it or not, Meta has a legendary AI team, even though it’s a bit leaner after the latest layoff. Is Meta paying too much to attract AI talent? Perhaps. But if Meta can attract top talent and gradually reduce its pool to the very best minds in AI, I do think Meta might be positioned to sprint ahead in the AI race at some point over the next two to three years. At the end of the day, you don’t need tens of thousands of talented AI engineers to be a leading force in AI.

Perhaps the magic number lies in the 1,000-3,000 range. Either way, as more coding in big tech is done by AI, I do think that the magic number stands to fall with time. And while aggressive hiring in booms could be followed by cuts and more years of efficiency, I can’t help but stay a fan of Meta Platforms from a long-term perspective. 

The image featured for this article is © Chip Somodevilla / Getty Images