Meta (META.US) stock has experienced a year of "false breakouts"! But with litigation risks resolved and the boost from Muse AI, bulls betting on a rally may finally see a breakthrough.

As investor confidence in Meta Platforms (META.US) as an artificial intelligence (AI) player has waxed and waned, the stock has been on a roller-coaster ride since the start of 2026. But after the company reached a settlement with multiple U.S. states over a social media addiction lawsuit and launched the Muse AI agent aimed at automating everyday tasks for ordinary people, bulls are betting the stock may be poised for a sustained breakout. Data shows Meta shares have risen 22% from their August low and are on track for their biggest monthly gain since May 2025. This rally is no different from several others Meta has experienced this year the stock had already seen four previous advances of at least 20% from trough to peak. Yet each rally proved short-lived, and each subsequent rebound peaked at a lower level. As a result, the stock is roughly flat year-to-date, far lagging the Nasdaq 100's 15% gain over the same period. Meta's stock has been volatile since the start of 2026 "It certainly can be enough to drive the early stages of a trend change removing a legal overhang, combined with a positive product in a hot narrative," said Dan Russo, co-chief investment officer at Potomac Fund Management, which holds Meta shares. "But we've seen multiple times where these countertrend rallies have fizzled out and faded. The key from here is building momentum and confirming a change in trend." In Russo's view, for Meta's latest advance to be deemed sustainable, the stock needs to "hold above $700 consistently." The stock closed up 2.7% at $665.60 on Monday. At the end of August, Meta reached a settlement with multiple U.S. states, agreeing to pay up to about $18 billion and committing to sweeping new restrictions on teenagers' use of its Facebook and Instagram social media platforms, thereby ending a class-action lawsuit over the harms of social media to minors. The lawsuit was seen as one of the highest-risk "bet-the-company" cases Meta has faced to date. Meta had previously estimated that if it lost, it could face fines of up to $1.4 trillion from the relevant cases in California, Colorado, Kentucky and New Jersey alone a scale that at one point approached the company's current market value. The states were not only seeking massive financial penalties on behalf of the public, but also asking the court to issue orders that could have forced Meta to change how it operates its platforms. For Meta, the biggest significance of the settlement may not lie in the roughly $18 billion payment itself, but in eliminating a tail risk that could theoretically reach the trillion-dollar level. Beyond Meta's own estimate of up to $1.4 trillion in fines, the states involved believed the actual figure was closer to $200 billion. Whatever the final number, the potential penalty was large enough to deal a fundamental blow to Meta's financial position and business model. For investors, Meta paid a massive but certain cost in exchange for a substantial reduction in litigation risk that could previously have been far larger and highly uncertain in outcome. For bulls, Meta's settlement with multiple U.S. states over the social media addiction lawsuit removed a key overhang on the stock. Since the settlement was announced on Aug. 26 U.S. Eastern Time, the stock has fallen on only four of 12 trading days. Morgan Stanley analyst Brian Nowak compared Meta's stock situation to what Alphabet Inc. Class C (GOOGL.US) investors saw in late 2025. At that time, Alphabet Inc. Class C won a favorable ruling in a long-pending antitrust case and then rolled out a series of new AI products. Since that antitrust ruling, Alphabet Inc. Class C shares have surged more than 50%, making it the best performer among the "Magnificent Seven" over the same period. In an Aug. 30 report, Nowak wrote that Meta is expected to keep releasing new products that "in aggregate can add more than $10 to earnings per share (EPS)." The analyst added: "We believe these are not currently reflected in Meta's share price, as the stock trades well below its 2025 peak levels when Meta was viewed as an 'AI winner' and GPU investments were driving faster growth." Nowak is not the only analyst who has turned more bullish on Meta in recent weeks. JPMorgan last week upgraded Meta to "overweight," citing Muse's "strong early performance." The bank's analyst Doug Anmuth said the early success proves why "Meta is well positioned to deliver consumer-driven AI products to its roughly 4 billion users." He added: "Meta still has considerable upside potential, as the company is still in the early stages of releasing frontier models and AI-driven products beyond advertising." Meta's valuation the cheapest among the "Magnificent Seven" apart from NVIDIA Corporation (NVDA.US) could also help attract investors. The stock currently trades at about 18 times forward 12-month earnings, below its 10-year average of 20 times and at a discount of more than 30% to its 2025 peak. Beyond the relatively low valuation, investors also have optimistic expectations for Meta's growth this year. According to compiled data, Wall Street analysts expect the company's revenue to grow more than 25% this year, while EPS is projected to jump more than 30%. Meta's capital expenditure is expected to swell sharply in the coming years Still, one area that remains a concern for Meta investors is the tens of billions of dollars in capital expenditure the company is pouring into AI. Meta's spending is expected to double this year to nearly $140 billion, then swell further to nearly $200 billion in 2027. The company, once known for its massive cash flow, is expected to report negative free cash flow of $6.3 billion this year, and that figure is projected to widen to nearly $30 billion by 2027. Cyrus Amini, chief investment officer at Hyphen Wealth Management, said these two factors alone are enough to make investors skeptical about whether Meta's current uptrend can continue. "The valuation is attractive, and it may have more near-term catalysts than large-cap tech peers. But if you look at a longer time horizon, it's hard to say. The stock could easily pull back again," he said. "Things change so fast that it's hard to say with confidence that any one company's stock will be a long-term winner."