Why Meta Stock Dropped on Friday

Meta Platforms (NASDAQ: META) stock tumbled 5.3% through 11:20 a.m. ET Friday amid a tech sell-off that's dragging down the Nasdaq by about 1.5%. You can probably blame banker BMO for that.

Or at least for the Meta part of the sell-off.

BMO is "meh" on Meta

BMO analyst Brian Pitz reiterated his market perform (i.e., hold) rating and $720 price target on Meta stock this morning. That doesn't sound like bad news -- Meta stock trades below $630 per share, so a $720 PT suggests the stock could rise 14% over the next 12 months.

And yet, Pitz isn't telling investors to buy Meta stock. Why not?

On the one hand, the analyst likes Meta's efforts to launch a cloud computing business centered on artificial intelligence -- but he does have concerns about the cost. Meta's expected to spend $140 billion on capital investment this year, yet has precious little to show for the investment.

"META has the least visible AI ROI story," warns Pitz, even as governments globally threaten its core business by restricting use of Meta's core social media products in an effort to curb societal ills surrounding children.

What's next for Meta

The regulatory risk seems to me the biggest concern for Meta, as it threatens the company's cash cow -- the source of all the money Meta is currently pouring into AI investment. The good news is that, so long as this cow remains alive and kicking, Meta can afford the investment; free cash flow for the past 12 months was still a healthy $49.4 billion.

The better news is that if Meta ever ratchets back its AI spending, free cash flow could easily double to $100 billion or better. On a $1.7 trillion market cap, that could be enough to make Meta stock a buy.

Rich Smith has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.