Meta’s AI Gamble Gets Bigger After the Company Considered Slashing Teams Again. What That Means for META Stock

Meta Platforms (META) stock is currently experiencing a fresh challenge following reports that the social media giant contemplated reducing some teams by up to 60% as part of an extensive AI restructuring. Known internally as Project OT or Organization Transformation, the initiative aimed to make Meta more AI-native by replacing certain traditional roles with AI-powered workflows and smaller teams.

In May, Meta announced the layoff of approximately 8,000 employees, or roughly 10% of its workforce, after shelving plans for a second round of cuts due to concerns over productivity results and employee resistance. This development sheds light on CEO Mark Zuckerberg's commitment to the AI race. The Project OT report primarily focused on Meta's strategy rather than immediate layoffs, highlighting the company's belief in AI's potential to transform operations.

However, the experiment also unveiled risks. Internal metrics suggested Meta's AI tools were not meeting productivity expectations, while reliability issues and employee dissatisfaction complicated the rollout, leading to the abandonment of another planned cut. Despite Meta's substantial AI investments, including data centers, computing infrastructure, and chips, the company's costs and expenses surged 55% year-over-year, outpacing revenue growth, and capital expenditures reached $31.08 billion in the second quarter.

Despite this, Meta's valuation has become more affordable, trading at 19.28 times trailing price-to-earnings, with a price-to-sales ratio of 6.33 times and a price-to-cash-flow multiple of 11.17 times. Investors are being asked to pay around 19 times earnings for a company with double-digit revenue growth while creating an AI platform that could generate new monetization opportunities.

Meta's AI strategy extends beyond Project OT, with the company building significant computing capacity, investing in AI infrastructure, and expanding AI into advertising, consumer products, and new services. Meta recently launched Meta Glasses in Japan, enhancing its AI glasses technology with an always-available AI assistant. Analysts view Meta stock favorably, with a Strong Buy rating based on 55 analysts and a mean price target of $751.08, indicating a 30.7% upside from the current share price.