Shares of Meta Platforms (META 0.50%) took a hit this week following reports that the social media giant is delaying the rollout of its newest custom artificial intelligence (AI) model.
According to The New York Times, the model -- code-named Avocado -- fell short of internal benchmarks when compared to leading models from rivals like Alphabet and OpenAI. The company is even reportedly considering temporarily licensing Alphabet's Gemini model to power its AI products in the meantime to bridge the performance gap.
For a stock that has commanded a premium valuation largely due to its perceived leadership in the AI race, the headline naturally spooked some investors.
But a step back reveals a different reality. The underlying business is firing on all cylinders. And, even more, management has already prepared for this exact scenario.
So, despite the market's pessimistic reaction, is this dip a buying opportunity?
Image source: Getty Images.
The news isn't a thesis-breaker
While the delay of a flagship AI model is not ideal, it is far from a disaster for Meta. A company spokesperson noted that the company's next model will still demonstrate rapid progress.
More importantly, investors shouldn't be entirely surprised if the timeline for achieving highly advanced AI models stretches out. Meta CEO Mark Zuckerberg explicitly warned investors about this possibility two quarters ago.
In a call with investors last October, Zuckerberg detailed some contingencies for its massive compute build-out plan.
"If it takes longer, then we'll use the extra compute to accelerate our core business -- which continues to be able to profitably use much more compute than we've been able to throw at it," Zuckerberg explained. "And we're seeing very high demand for additional compute both internally and externally."
The company anticipated that the path to next-generation AI might not be perfectly linear, and it prepared accordingly.
A core business that needs the capacity
The biggest fear surrounding Meta's massive spending is that the company is overbuilding.
In January, Meta guided for 2026 capital expenditures of $115 billion to $135 billion. To put that massive absolute capital expenditure figure into perspective, the midpoint of this guidance range represents about 8% of the company's entire market capitalization. If custom AI models get delayed, isn't all that spending a waste?
Not exactly. The reality is that Meta's core business -- delivering targeted advertising across Facebook, Instagram, and WhatsApp -- is highly compute-intensive anyway.
And that business is currently booming. In the fourth quarter of 2025, Meta's revenue rose 24% year over year to $59.9 billion. This was driven primarily by an 18% increase in ad impressions and a 6% rise in the average price per ad.
In a worst-case scenario where the timeline for advanced AI is drastically delayed, Meta is simply building ahead of its infrastructure needs -- another contingency Zuckerberg discussed in its third-quarter earnings call last year.
"And in the worst case, we would just slow building new infrastructure for some period while we grow into what we build," Zuckerberg said.
NASDAQ: META
Key Data Points
Is this a buy-the-dip moment?
Ultimately, I don't believe this AI model delay is as bad for investors as the recent sell-off suggests.
Meta is a highly profitable enterprise with a durable core business. Yes, the company is spending aggressively, but that spending is supported by an $81.6 billion war chest of cash and marketable securities and a proven ability to monetize user engagement.
With that said, valuation always matters. And the stock's current valuation arguably still assumes strong execution in both its core ad business and its future AI endeavors. A valuation like this leaves little room for error, therefore, if the core business begins to slow down while capital expenditures remain elevated.
Fortunately, Meta guided for even faster revenue growth in Q1. The midpoint of its revenue guidance range implies 30% year-over-year growth. So I don't think we have to worry about a potential slowdown yet. Still, the company's growth trajectory will constantly be under extreme scrutiny as long as its capital expenditures remain elevated.
But for investors willing to look past the near-term noise and accept the risks associated with a major technological transition, this dip looks like an attractive opportunity to start a small position in the stock.
