Meta And Reddit Stocks Are Slumping Despite Strong Digital Ad Growth. Here's Why.

With fears about AI disruption and worries about the broader economy gripping Wall Street, strong digital advertising growth hasn’t been enough to keep social media stocks afloat. That been true for Meta stock and 2024 breakout IPO Reddit (RDDT).

Shares of Facebook parent Meta (META) are more than 20% off their six-month high while Reddit’s stock has shed nearly half its value since January. Meanwhile, shares of Snapchat parent Snap (SNAP) and Pinterest (PINS) are near three-year lows.

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Shares of the social media players have historically been tied to the strength of the digital advertising market. Meta, Snap and Pinterest slumped in 2022 when marketers cut back sharply on spending. But U.S. advertising spending is fresh off a Q4 that one analyst described as among the strongest on record. Meta and Reddit in particular posted December quarter revenue growth sharply ahead of expectations.

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Meta Stock Macro Concerns

So what’s going on?

Analysts say the stock slump highlights the wide range of investor debates tied to AI and the broader economy. Investors are concerned that Meta is spending too much on its AI push and not getting clear results. Meanwhile, there are also investor fears that smaller social platforms could be left behind in the AI era.

In the AI arms race, investors are focused on companies with the most resources to win, Baird tech strategist Ted Mortonson told Investor’s Business Daily.

“This cycle is all about who has the balance sheet, the engineers and the scale,” Mortonson said.

Of course, social media stocks are not alone in grappling with a rocky start in 2026. The S&P 500 overall is off 4% year-to-date. Mortonson said broader macroeconomic concerns are weighing on technology stocks.

That includes fears that AI will displace traditional software business models. Add to that the Iran war and potential spiking energy costs, at a time cloud hyperscalers are spending hundreds of billions to build and power AI data centers.

“Right now, all of tech is very, very tough to invest in,” Mortonson said. “When the IGV — the software index — is down 23%, you’ve got a structural problem in this move to new technology.”

AI Returns In Focus For Meta Stock

Meta has the clear scale advantage among social media players. Analysts project the company will reach $250.6 billion in revenue this year, according to FactSet. Snap, Pinterest and Reddit are expected to reach about $15 billion in combined 2026 revenue.

Despite its size, Meta’s revenue is growing faster than both Snap and Pinterest. Sales grew by more than 20% in four of Meta’s past five quarters. Revenue is projected to grow 31% during the current quarter. Chief Executive Mark Zuckerberg has credited the strength of Meta’s AI tools for users and advertisers for its accelerating growth.

But Meta’s strong growth hasn’t been enough to turn around its recent slide. Investors fear that the tech giant is falling behind in the race for AI leadership against OpenAI, Anthropic and Google parent Alphabet (GOOGL).

That’s despite Meta’s plan to dole out up to $135 billion this year for its capital expenditures, compared with $70 billion last year. The company also spent billions recruiting top researchers last summer as it revamped its AI team.

Meta’s Unripe Avocado

Meta’s latest attempt to catch up is a new AI model called Avocado. But the effort has been delayed, according to reports earlier this month.

Meanwhile, the AI spending is eating away at Meta’s balance sheet. Free-cash-flow is projected to decline by 86% to $6.25 billion this year, according to FactSet.

The shift for Meta, Google and Microsoft from a “capital-light to capital-heavy businesses” as they build out AI infrastructure is a “difficult mental transition for many investors,” Needham analyst Laura Martin said in a recent client note.

Martin rates Meta stock as hold, or neutral. She noted that Meta has a size disadvantage among tech titans racing to build the top AI platform. For instance, analysts expect Google’s free-cash-flow to fall 61% this year. But that would still leave Google’s free-cash-flow at about $30 billion for the year by those projections, according to FactSet.

Reddit’s AI Displacement Concerns

As a much smaller company, Reddit is staying away from the AI hyperscaler arms race. But the online-forum operator is facing AI fears of its own.

The biggest concern is that AI models will capture the types of user queries that have traditionally sent people to Reddit.

Google is a key driver of traffic. But the company’s dominant search engine increasingly answers user queries directly through Google’s AI overviews.

Concern about that shift was clear following Reddit’s Q4 results in early February. The top and bottom-line numbers blew away expectations, highlighted by a 70% jump in revenue to $726 million. Earnings growth of 244% helped allow Reddit to announce a $1 billion stock buyback.

Yet shares fell 7% following the report. Analysts pinned the blame on a lower-than-expected 5% increase in U.S. logged-in daily users. Logged-in users are typically more engaged and of higher value to Reddit.

The debate over its Google dependence halted Reddit’s more than 600% run that followed its IPO in March 2024. Shares are down 51% from a high of 282.95 on Sept. 18.

Reddit, meanwhile, counters that its platform is built for the AI age. For one, the billions of posts on its platform are valuable for developing AI models. It has licensing deals with both Google and OpenAI for that content.

Beyond that, Chief Executive Steve Huffman had described Reddit as the “most human place on the internet,” and a respite from “AI slop.”

Digital Advertising: Big Getting Bigger?

The biggest concern for smaller social media players is whether AI will allow the giants of the industry to capture even more power. Google, Meta and Amazon together already account for more than half of digital advertising revenue, according to most market estimates.

“We view Amazon, Google and Meta as structural winners within the digital advertising sector,” Wedbush analyst Scott Devitt wrote in a recent client note. “These operators are already demonstrating tangible results from the infusion of AI across the business, bolstered by scale and data advantages.”

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Meanwhile, there is also growing legal and regulatory scrutiny on social media platforms, particularly Meta’s Facebook and Instagram.

Meta and YouTube-owner Google were found liable in a closely-watched California case late Wednesday. The case accused the tech giants of intentionally addicting a young woman to their products and damaging her mental health.

Google Leads Internet-Content Group

Meta, Reddit, Pinterest and Snap are part of the Internet-Content industry group tracked by IBD. The group’s six-month stock performance ranks it 160 out of 197 groups tracked by IBD.

Google is the top-ranked stock in the group, with an IBD Composite Rating of 93 out of a best-possible 99, according to IBD Stock Checkup. Meta ranks ninth with a 59 IBD Composite Rating while Reddit is 12th with a score of 51.

Pinterest also has a score of 51 while Snap has collapsed to a near rock-bottom score of 4 out of 99.

On the positive side for social media companies, the advertising market has held up so far despite broader economic concerns.

Industry analyst Brian Wieser earlier this month raised his forecast for 2026 ad industry growth to 8.1% when excluding political spending, up from a prior 6.6%. He described the Q4 advertising results as among the strongest on record. Social media is a standout in that group, growing 29% year-over-year in Q4, according to his estimates.

“AI systems increasingly power both recommendation engines that drive user engagement and optimization tools that improve campaign execution,” Wieser wrote on his Madison and Wall Substack. “In addition, strong growth from Reddit, Meta, TikTok and others has continued despite the already massive scale of spending on these platforms.”

However, the analyst cautioned that he expects growth to slow throughout the year as “policy, geopolitical, and regulatory pressures accumulate and weigh on advertising budgets.”

That could put further pressure on Meta and Reddit to counteract those challenges by building on their AI ad offerings. Reddit rolled out AI-powered tools this week focused on boosting shopping, with Meta announcing similarly new e-commerce-focused ad tools a day later.

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