Jim Cramer says don’t sell Meta on litigation risk — the stock is worth the wait
Meta Platforms ‘ mounting legal battles over allegations that it fostered addictive behavior in kids have become a headline risk for the already troubled Club stock. But like Jim Cramer, Bank of America warns investors against letting the courtroom drama overshadow the long-term opportunity. “While the stock is down on [California] trial headlines, we believe the current bellwether trial outcome will represent only one data point in a multi-jurisdictional litigation process that will take many years to resolve,” BofA wrote in a note to clients Monday. Based on the drawn-out timeline and Meta’s “compelling valuation” of around 16 times estimated 2027 earnings due to “growing AI capacity assets,” the analysts kept their buy rating on the stock. They also maintained their $810 price target, implying nearly 45% upside from current levels around $560. Meta is facing a federal lawsuit brought by 29 state attorneys general. The trial, which got underway in an Oakland court last week, could result in billions of dollars in damages and forced remedies that could lead to an overhaul of Facebook and Instagram. Testimony from CEO Mark Zuckerberg and other company employees is expected. The outcome of this trial is consequential because it could set the tone for other pending cases across the country. The litigation has added another layer of uncertainty for Meta investors during an already difficult year, marked by concerns about the levels of artificial intelligence spending and the path toward seeing a return on those investments. Shares are down 26% in 2026, making Meta one of the worst-performing mega-cap tech stocks. META YTD mountain Meta Platforms YTD Still, Bank of America outlined several reasons investors should be careful about extrapolating a worst-case scenario from the California trial. Importantly, the jury’s decision is advisory, meaning the ultimate decision rests with the judge, who can accept or reject the conclusions. Analysts noted that the judge has already dismissed several of the plaintiffs’ claims. Bank of America believes “causation remains a hurdle” because “plaintiffs must link specific platform features to alleged youth harm,” suggesting that link may not be linear. The firm also noted that as the trial drags on, “courts can reduce excessive damages through remittitur and awards may be overturned on appeal.” The case could potentially reach the Supreme Court. Others on Wall Street, however, see higher levels of risk, equating Meta’s case to Big Tobacco in the 1990s when tobacco companies had to pay billions for misleading the public about the safety and potential harms of their products. In the years that followed, tobacco companies lost their power as the lawsuits exposed their threat to public health. Mizuho sees “many parallels to the Big Tobacco case,” and warns of possible fines in the tens of billions of dollars. In a note last week, the analysts said, “The sentiment impact from any significant platform changes would be immediately negative,” raising questions about Meta’s ability to grow its users over the long term. There are currently three billion monthly active users on Instagram and Facebook, giving advertisers a treasure trove of personal data that they can target. Meta, which makes more than 90% of its revenue from advertising, helps slice and dice its massive audiences through the power of AI-driven ad targeting and AI tools to help companies make their ads. Potential remedies are arguably a bigger long-term concern than the financial penalties, according to Bank of America. The analysts said that rulings or settlements would certainly include requirements to change engagement features, potentially affecting how much time users spend on Meta’s platforms. That’s all speculation at this point, as the California case does appear to be narrowing in scope. Among the claims tossed by the judge are features such as infinite scroll and autoplay, leaving the trial focused on a smaller set of practices like allowing multiple accounts, appearance-altering filters, and tools for managing time spent. In its defense, Meta has claimed immunity under Section 230 of the Communications Act, which provides limited federal immunity to providers and users of interactive computer services. Bank of America pointed out that this “litigation may test whether Section 230 applies to platform design decisions.” Jim believes Meta will continue appealing any unfavorable decisions as the cases move through the court system, potentially reaching the Supreme Court, which he thinks will “likely side with the defendants.” As for Meta stock, he said that litigation risk “is not a good reason long-term to sell [Meta], even as you can expect the stock to be rocked in these lower-level victories.” The stock has been up and down since losing two major cases in late March. On March 24, a jury in New Mexico ruled that the social media giant willfully violated consumer protection laws by harming children’s mental health through its deceptive product design. One day later, a jury in Los Angeles determined Meta was negligent and failed to warn users of the mental health dangers associated with using its platforms. However, ultimate vindication, or at least mitigation on the legal side of things, as well as the potential of AI as a multiplier for Meta’s business, is keeping us in the stock. During our August Monthly Meeting , Jim said he “can’t count on selling” Meta stock, because he remains convinced the enormous computing capacity that the company is building will eventually serve purposes beyond improving social media ads and transform the company into a “premier hyperscaler.” Still short on details, even after its less-than-stellar earnings report , Meta first confirmed last month that it is laying the groundwork for a cloud business to sell its extra compute to outside customers. (Jim Cramer’s Charitable Trust is long META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
About the Author
