Meta Platforms announced a flurry of AI initiatives this month, from low-cost smart glasses and enterprise tools for businesses to plans to build a market-predicting app and a key partnership with Qualcomm to boost its computing power. But none of them seem to be connecting with investors. The social media giant’s stock remains one of the worst performers among mega-cap stocks this year, falling more than 17%. Microsoft was the only company among the Magnificent Seven to suffer, with sales down 26%. Wall Street analysts say the reason is simple. Because investors no longer judge the meta by how much AI-related stuff can be created. They are trying to determine whether those products and services will generate enough sales and profits to justify the company’s aggressive spending on data centers. Piper Sandler analyst Thomas Champion told CNBC that this AI investment cycle is one of the best in capital spending on record and is the “elephant in the room” that the Street is paying attention to. “A lot of the analysts are very positive about Meta’s core advertising business,” he said. “But we know they’re investing very aggressively on a capex basis, so the cash flow is going to be essentially zero.” Meta’s first quarter results, reported on April 29, further reinforced those concerns. The company raised its fiscal 2026 capital spending outlook to $125 billion to $145 billion, up $10 billion to $135 billion at the midpoint, citing rising costs for memory, chips and other components needed for data centers. Following the news, Meta’s stock price fell 9%. The next day, Bloomberg reported that Meta was planning a $25 billion bond sale to fund AI spending. Champion said Meta’s increased capital spending was a “disappointment” that overshadowed its strong sales growth. “That’s the one thing they couldn’t do, they couldn’t make the stock react positively,” he said, adding that the stock’s return has been “pretty mediocre” since then. “We have to break that pattern.” Another blow to Meta is that it doesn’t have a high-margin cloud business like other hyperscalers like Alphabet, Microsoft and Amazon, Jim Cramer said. Their cloud business helps justify their large AI spends. But Meta has a good and reliable advertising business. Jim added that they tend to cut back on meta when stock prices skyrocket. “They’re very disappointed,” he said at the June monthly meeting for investment club members. “Meta is having a hard time explaining to the market that investing in AI is worth sacrificing all of its free cash flow,” said Jeff Marks, director of portfolio analysis at the club. He added: “Unless we can prove that our investments are generating new meaningful revenue streams, the market will continue to be uncomfortable with their spending levels.” Champion agrees that investors need evidence that spending is stabilizing, not accelerating. He would like to see the benefits of company-wide cost optimization as AI projects and metas constrain capital spending heading into the second quarter. Revenue growth is also important. “Nothing adds value like revenue growth,” Champion said, pointing to Meta’s ability to continue to grow revenue by more than 20% each year, even though it already generates about $250 billion in annual revenue. That doesn’t mean some of Meta’s new efforts can’t be winners. In a Thursday research note to Piper Sandler customers, Champion said the company’s new AI-powered business messaging agent automates customer support, provides product recommendations, schedules appointments and manages transactions across WhatsApp, Messenger and Instagram. The analyst wrote that the market is “undervalued,” worth more than $75 billion annually, and could ultimately “spark the next wave of revenue growth” for Meta. Piper Sandler also highlighted growth opportunities for business messaging in emerging markets such as India, Vietnam, Indonesia and Thailand. This AI tool “breaks down the cost barriers that limit developed market adoption” in these countries. The company notes that business AI conversations grew from 1 million to 10 million weekly in the first quarter, encouraging early adoption. Evercore ISI highlighted another viable revenue stream besides advertising. Analysts said in a research note this week that Meta One, a paid AI subscription service that provides users with additional features in Meta’s family of apps, is a “revenue diversification strategy that has modest revenue impact and could have a significant impact on operating margins over time.” Various price points are available for individual consumers or businesses. Meta One Plus costs $7.99 per month, and Meta One Premium plan costs $19.99 per month. Meta One is currently in limited testing and may not be available in all locations. Evercore’s confidence in AI subscriptions stems from Meta’s more than 3 billion daily active users across social media platforms and the company’s growing presence online. Evercore analysts said, “Even modest penetration into Meta’s ecosystem of billions of users could create a meaningful and highly profitable revenue stream over time.” The company has outlined a plausible scenario in which Meta reaches 2-4% penetration of its Meta One product over the next two to three years, implying an increase in sales of $5 billion to $10 billion and operating profit of $3.5 billion to $7 billion by 2028. Analysts point to a similar social subscription, Snapchat+, as a benchmark, although they say this is a new product and expectations may be off. The service has converted more than 5% of Snapchat’s 25 million daily active users. Evercore has a Meta Outperform rating and a $930 price target. Meta’s current valuation already reflects investor concerns about AI spending and does not take into account future AI revenue opportunities from recently announced AI projects. Champion emphasized that Meta is “interesting because it’s trading below the market, but it’s definitely earning more than the market.” While the S&P 500’s forward P/E ratio remains at around 21, it is 16 times the meta. Piper Sandler rates Meta a buy and has a price target of $800. (Jim Cramer’s Charitable Trust is a long META. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. 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