Todd Gordon Pivots From Meta Amid Market Shift Toward Value

In times of volatility and uncertainty, I lean heavily on the combination of technical and fundamental analysis to understand where we have been, where we are, and where we may be headed. Three charts tell the story. The first chart overlays Meta’s daily price on its ratio to the S & P 500 (SPY). For years, the price and the ratio moved largely in step. That changed after Meta peaked in the fall of 2025. This autumn, the stock rallied back to that high and stalled, forming a double top, while the ratio made a significantly lower high. Even Meta’s recovery has lagged the market.

The reasons are clear: investors are questioning the hyperscalers’ enormous AI spending and whether it will ever earn an adequate return. Meta’s Oct. 21 report looked solid on the surface, with record revenue of $64.6 billion, up 26% and ahead of expectations. However, the problem was spending. Capex ate more than half of the revenue in the quarter, and the company now expects 2026 capex of $135 billion to $145 billion, roughly double the $70 billion spent in 2025. This spending has pushed Meta’s free cash flow negative for the first time in more than a decade, and the stock is being punished for it.

This scrutiny mirrors concerns from Oct. 27, 2022, when Jim Cramer famously soured on Meta, warning that management failed to rein in spending before it consumed free cash flow. Then annual capex was running around $31 billion. Four years later, the skepticism remains. Alphabet fell about 10% after hours on Oct. 28, even though Google Cloud revenue more than doubled. Earnings missed, partly due to a paper loss on its SpaceX stake, but the spending stole the show. Alphabet posted $51.4 billion of quarterly capex and a second straight quarter of negative free cash flow, and it said spending will climb again in 2027.

We recently added to our position after the warm reception of Meta’s new Muse AI agent. But four years after Cramer’s mea culpa, the Street is again heavily questioning Meta’s spending, and we may need to reduce our holdings.

Click here for the full disclaimer.

Source link