Shares of Meta Platforms (NASDAQ:META) experienced a decline this week following reports that the social media giant is delaying the rollout of its newest custom artificial intelligence (AI) model, code-named Avocado. The company is reportedly considering temporarily licensing Alphabet‘s Gemini model to bridge a perceived performance gap.
According to The New York Times, the Avocado model fell short of internal benchmarks when compared to leading AI models from competitors like Alphabet and OpenAI. This news has caused concern among investors, particularly given Meta’s significant investments and perceived leadership in the AI race.
AI Model Delay Not a Thesis-Breaker
While the delay of a flagship AI model is not ideal, it is not considered a disaster for Meta Platforms. A company spokesperson indicated that the next model will still demonstrate rapid progress. Investors should also note that Meta CEO Mark Zuckerberg had previously warned about the potential for timelines on advanced AI models to stretch out.
During an investor call last October, Zuckerberg detailed contingencies for the company’s 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 had anticipated that the path to next-generation AI might not be linear and had prepared accordingly for such scenarios.
Core Business Demands Significant Capacity
A primary concern surrounding Meta‘s substantial spending is the potential for overbuilding infrastructure. In January, Meta guided for 2026 capital expenditures between $115 billion and $135 billion. This guidance range represents approximately 8% of the company’s market capitalization at the midpoint.
However, the reality is that Meta‘s core business, which involves delivering targeted advertising across Facebook, Instagram, and WhatsApp, is inherently compute-intensive. This advertising business is currently experiencing robust growth. In the fourth quarter of 2025, Meta‘s revenue increased by 24% year-over-year, reaching $59.9 billion, driven by an 18% rise in ad impressions and a 6% increase in the average price per ad.
In a worst-case scenario where advanced AI timelines are significantly delayed, Meta would essentially be building infrastructure ahead of its immediate needs. Zuckerberg had previously discussed this contingency, stating that in such a situation, the company would “slow building new infrastructure for some period while we grow into what we build.”
Is This a Buy-the-Dip Moment?
Ultimately, the delay of this AI model is not viewed as a significant long-term negative for investors, despite the recent market reaction. Meta Platforms is a highly profitable enterprise with a durable core business. The company’s aggressive spending is supported by an $81.6 billion war chest of cash and marketable securities, coupled with a proven ability to monetize user engagement.
However, valuation remains a critical factor. The stock’s current valuation arguably assumes strong execution in both its core advertising business and its future AI initiatives. This leaves little room for error, particularly if the core business begins to slow while capital expenditures remain elevated. Fortunately, Meta guided for even faster revenue growth in Q1, with the midpoint of its guidance range implying 30% year-over-year growth, suggesting a slowdown is not imminent.
For investors willing to look past the near-term volatility and accept the risks associated with a major technological transition, this dip may present an attractive opportunity to initiate a position in the stock. The company’s trajectory will continue to be closely monitored as long as its capital expenditures remain high.
The significant AI Spending Boom is poised to benefit companies like Nvidia, Micron, and TSMC, which are central to the development and deployment of AI technologies.
Fonte: Nasdaq
