This decline wiped out approximately $119 billion in market value in a single day, pushing Meta down to eighth place among U.S. companies by market capitalization, behind Tesla. Since the beginning of the year, Meta’s shares have dropped around 30%, and are now more than 30% below their all-time high of $790 reached last August. More concerning is that this selloff is not driven by a single factor, but by a combination of legal risks, rising capital expenditures, and macroeconomic pressures — none of which are short-term “noise.”

Legal “Black Swan” Events Hit Meta

Within a single week, Meta suffered two major legal setbacks.

On March 25, a New Mexico jury ruled that Meta must pay $375 million in civil penalties, finding that the company misled local teenagers about the safety of Facebook and Instagram despite knowing these platforms had become breeding grounds for sexual predators. Shortly after, a Los Angeles jury ruled that Meta and Google were partially responsible for a young woman’s depression, ordering the two companies to pay a combined $6 million in damages, with Meta bearing roughly 70% of the liability. The ruling concluded that platform design played a “significant role” in fostering addictive behavior among teenagers.

Although these fines are relatively insignificant compared to Meta’s balance sheet, the market’s concern lies not in the penalties themselves but in the signals they send. Timothy Edgar, a lecturer at Harvard Law School, described this as a “turning point,” reflecting growing public skepticism toward large technology companies.

More troubling is that these cases may only be the beginning. Over 2,400 similar lawsuits have already been consolidated in federal court in California, with thousands more pending in state courts. These rulings could cast a long shadow over Meta’s digital advertising business.

Legal experts warn that this wave of litigation may prompt Congress to reconsider Section 230 of the Communications Decency Act, which currently shields internet platforms from liability for user-generated content. If this protection is weakened or removed, Meta could face not just financial penalties, but a fundamental restructuring of its business model.

Massive AI Spending Weighs on Valuation

On the same day as the stock decline, reports emerged that Meta had increased its investment commitment for an AI data center in West Texas more than sixfold, to $10 billion, with a target of reaching one gigawatt of capacity by 2028. This is only one part of Meta’s broader AI expansion plan, with total capital expenditures expected to reach $115 billion to $135 billion this year, a sharp increase from last year.

The market’s concern is clear: the accelerating capital expenditure curve is becoming a major valuation headwind. Meta’s forward price-to-earnings ratio has dropped from a five-year average of 23x to around 16x — near a three-year low — indicating that investors are already pricing in the risks of heavy AI spending.

Adding to the challenge, Meta’s AI development appears to be lagging behind competitors. Its next-generation AI model, codenamed “Avocado,” has been delayed from March to May. Meanwhile, its planned $2.5 billion acquisition of Singapore-based AI startup Manus has encountered regulatory scrutiny from Chinese authorities, with the company’s two Chinese co-founders effectively restricted from leaving the country. This suggests that Meta’s path to catching up in AI may be more difficult than expected.

The macro environment is also exerting pressure. The ongoing escalation of the U.S.–Iran conflict has driven oil prices higher, fueling inflation concerns and reviving fears of further interest rate hikes by the Federal Reserve. When rising interest rates (the denominator) combine with earnings pressure (the numerator), high-valuation tech stocks are typically hit hardest.

Meta, facing both legal risks and rising capital expenditure, has become one of the first targets for capital outflows.

Overreaction or Value Trap?

Some investors argue that the market reaction may be excessive. Meta’s forward P/E ratio of around 16x is near a three-year low, while its core advertising business remains resilient. Revenue contribution from teenage users accounts for only about 1%, suggesting that even with product adjustments, the direct financial impact may be limited.

However, more cautious investors warn that these legal rulings could open the door to regulatory pressures similar to those faced by the tobacco industry. If Congress revises Section 230, Meta could face not just a modest earnings impact, but a fundamental transformation of its entire business model.