Yesterday, shares of Facebook and Instagram owner Meta Platforms (Nasdaq: META) dropped nearly 8% in a single trading session, ending the day at $547.54 per share.
Today, the stock price has continued to fall, down about 2.5% in early-morning trading. At its current price of around $533 per share, it has declined more than 32% since META shares reached an all-time high of over $796 per share last August.
But why has Meta, led by CEO Mark Zuckerberg, seen its stock fortunes reversed so profoundly since last summer? There are three primary factors at play.
Meta loses landmark social media addiction trial
The most immediate factor affecting META stock is likely the company’s recent loss this week in a closely watched social media addiction trial.
The trial aimed to determine whether Meta and its social media platforms, especially Instagram, were responsible for the negative effects on one of its users by keeping the user addicted to their platforms since she was a minor.
The jury found that Meta (and, to a lesser extent, codefendant Google) were liable and awarded the plaintiff $3 million in damages, with Meta required to pay 70% and Google the remaining 30%.
Meta said it disagrees with the decision and plans to appeal. But after the California case outcome was announced, the company’s stock plunged nearly 8%.
Of course, the proposed payout is chump change to the $1 trillion-plus company. It’s the lasting ramifications of the verdict for Meta’s business model and methods that likely have investors spooked.
Many are calling the trial a “Big Tobacco moment” for social media, and with Meta being the owner of the largest and most profitable social media platforms out there, investors may fear that this case will spark other similar lawsuits.
It may further lead to regulators and governments around the world tightening the screws on social media companies in favor of protecting younger, more vulnerable users.
Should this happen, it could have a permanent impact on the company’s bottom line, which is driven by its ability to serve advertising to users and keep them on the platform for as long as possible.
Investors continue to worry about AI spending
Another factor keeping Meta investors up at night is artificial intelligence.
While most investors are likely happy that Meta has effectively dropped its pursuit of the metaverse in favor of becoming one of the biggest AI players, they are also concerned about the amount of money that Big Tech is spending to build out its AI infrastructure.
Worries of an AI bubble financed by circular deals have not gone away, and tech giants, including Meta, continue to spend tens of billions on AI capex.
Indeed, Meta has committed to increasing its capex by a staggering 73% in 2026, to between $115 billion and $135 billion in total.
That is a phenomenal amount of money to spend on a technology that is not even close to profitability.
And investors worry that if the AI bubble does pop, a good share of Meta’s cash flow would have been eaten up on a technology that didn’t turn out to be as transformative, or profitable, as AI evangelists have been proclaiming.
Layoffs introduce uncertainty
A final, lesser factor that may have spooked some investors recently is Meta’s layoffs. Already this year, Meta has reportedly undergone two significant rounds of layoffs—first, 1,500 from its Reality Labs VR division in January, and, most recently, another 700 positions this week.
To be sure, Wall Street usually cheers layoffs because they are the fastest way for a company to reduce costs, which can then be shifted elsewhere or used to boost the company’s bottom line.
But layoffs can also signal that a company is correcting for things that it perhaps should have seen and avoided in the first place—whether that’s misallocated resources or over hiring.
While the company’s most recent layoffs are likely the least significant factor affecting META stock, the fact that layoffs have been required at all likely weighs on some investors’ minds.
Meta is the worst performer in the Magnificent 7
Over the past 12 months, Meta’s stock price has fallen nearly 11%, making it the worst performer among the Magnificent 7 big tech stocks.
In that same timeframe, Microsoft Corporation (Nasdaq: MSFT) is the only other Mag 7 stock in the red, down about 8%.
Amazon.com, Inc. (Nasdaq: AMZN) is essentially flat, while Apple Inc. (Nasdaq: AAPL) is up over 13%, Tesla, Inc. (Nasdaq: TSLA) is up more than 33%, NVIDIA Corporation (Nasdaq: NVDA) is up more than 50%, and Alphabet Inc. (Nasdaq: GOOG) is up nearly 70%.
The Nasdaq Composite, on which all Magnificent 7 stocks trade, is up more than 18% over that same 12 months.