Shares of Meta Platforms (META) are trading lower after former president Donald Trump referred to Facebook as “an enemy of the people.” The drop could also be a sign that the AI momentum leading the recent rally may be fatigued.
Yahoo Finance Anchors Brian Sozzi and Julie Hyman discuss possible causes of the dip, from Meta’s earnings to a potential upcoming stock downgrade.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Nicholas Jacobino
Video Transcript
BRIAN SOZZI: I’m locked in on Meta, down more than 4% in today’s session. Why do I care about this one? It’s pretty simple. It’s the latest sign in the markets that the AI stock trade is fatigued. This stock you’re seeing it down close to 4%. Right now, near session lows.
And really, let’s keep in mind that this was a stock prior to today’s session up close to 40% year-to-date. Julie, of course, Meta as part of that really trade up in all things AI. I Would call this a second derivative trade on the AI. Meta, of course, is working on AI, but more so focused on Quest goggles as Mark Zuckerberg recently talked about, again, bashing that Apple goggle.
But for me, I think investors are going back to these AI trades and what they report in the most recent quarter and really digging into, are these companies making money? And are they going to make more money than people expect? And I went back to that Meta’s earnings, and I think investors are not realizing how much they’re going to spend this year on Reality Labs and how that might impact their profit margins.
JULIE HYMAN: Well, I respect the fact that you’re giving people credit for digging back into the fundamentals. I would submit it’s probably more of a momentum trade that we saw. And the momentum trade starting to falter a little bit, right? All of the momentum chasing that we’ve had been seeing happen in the likes of Nvidia, which is now continuing to roll over a little bit, in the likes of Meta, which is now rolling over. A pause or is it something more sustainable? I think that remains to be seen.
The excuse today, at least, seems to be something that’s been another theme in the market, questions about the upcoming presidential election, what are the impacts going to be on the US economy, on the markets? This is after former President Trump made some disparaging comments about Meta in the context of him coming out in support of TikTok not getting a different owner, which is something–
BRIAN SOZZI: And tomorrow, Julie, he may say something completely different.
JULIE HYMAN: He might, right? And who knows if that’s really the reason that Meta is selling off on concerns about what would happen under a future Trump presidency potentially, but maybe it’s an excuse [INAUDIBLE].
BRIAN SOZZI: I’ll just add this. When I see this type of action on Meta that there might be a downgrade coming on the stock from Wall Street Investment Bank. Now, I don’t have any knowledge that might happen. When I see this type of action after a big sell off on like I saw on Nvidia on Friday, it tells me the banks might be getting a little worried, may come out with some downgrades in the weeks ahead.
JULIE HYMAN: Well, the folks over at JP Morgan at least on a macro basis led by Mislav Matejka over there not getting worried looking at the five-year PEs of the Magnificent Seven versus where they are. Now, Meta interestingly enough is trading above a five-year average.
BRIAN SOZZI: They’re all pricey.
JULIE HYMAN: They are not all pricey.
BRIAN SOZZI: They are all pricey.
JULIE HYMAN: They aren’t all pricey.
BRIAN SOZZI: 40, 50 times earnings?
JULIE HYMAN: They’re not all at 40, 50 times the price.
BRIAN SOZZI: I’m not saying all of them, but a of them are pretty pricey.
JULIE HYMAN: OK.
BRIAN SOZZI: I know you’re [INAUDIBLE].
JULIE HYMAN: I mean, we got the numbers.
BRIAN SOZZI: I got the numbers.