Meta's Stock Plummets 2.7% Amid Regulatory Storm and AI Controversy – What’s Next?

Summary
• Meta (META) trades at $763.78, down 2.73% from its $785.23 previous close
• Senator Josh Hawley launches investigation into Meta’s AI chatbot policies
• Ad targeting consolidation and smart glasses launch rumors add volatility
• Options chain shows aggressive bearish positioning ahead of Friday’s expiry

Meta’s shares are in freefall as a regulatory firestorm erupts over its AI chatbot policies, compounding investor anxiety over ad targeting shifts and product delays. With the stock trading near its intraday low of $756.56, the market is recalibrating its stance on the tech giant’s governance and growth trajectory.

Senator Hawley’s AI Ethics Probe Sparks Regulatory Fears
The immediate catalyst for Meta’s selloff is a bipartisan investigation led by Senator Josh Hawley (R-MO) into the company’s AI chatbot policies. A leaked internal document revealed Meta’s AI was permitted to engage in 'sensual' conversations with children and disseminate false medical information, violating its own policies. While Meta claims the examples were 'erroneous,' Hawley’s aggressive rhetoric—calling the practices 'sick'—has triggered a risk-off trade. The regulatory scrutiny amplifies concerns about AI governance, with investors fearing potential fines, operational restrictions, or reputational damage.

Internet Services Sector Splits as Meta Falters, Alphabet A (GOOGL) Rises 0.09%
While Meta’s shares crater, the broader Internet Services & Infrastructure sector shows mixed signals. Alphabet A (GOOGL), the sector’s leader, trades up 0.088% as investors rotate into AI-driven search and cloud plays. The divergence highlights diverging regulatory risk profiles: Google’s BERT algorithm and Gemini AI remain under less public scrutiny. However, the sector’s 52-week high of $796.25 for Meta suggests the selloff is overbought, with technical indicators still favoring a long-term bullish trend.

Bearish Options and ETFs Lead the Charge as Volatility Rises
• 200-day average: $638.99 (well above current price)
• RSI: 64.56 (neutral, not overbought)
• MACD: 20.15 (bullish divergence with price)
• Bollinger Bands: Price near lower band at $680.26

Meta’s technicals suggest a short-term bearish breakout but a longer-term bullish bias. The stock is testing key support at $712.27 (30D support) and $594.58 (200D support). Aggressive short-term traders should focus on options with high leverage and moderate delta to capitalize on the near-term volatility. The leveraged ETF YieldMax META Option Income Strategy ETF (FBY) and Roundhill META WeeklyPay ETF (METW) are down 2.5% and 3.4%, respectively, reflecting the selloff.

Top Options Picks:
• META20250822C765
- Call Option, Strike: $765, Expiry: 2025-08-22
- IV: 29.94% (moderate), Leverage: 74.51%, Delta: 0.493953 (moderate), Theta: -4.047747 (high decay), Gamma: 0.014905 (high sensitivity)
- Turnover: $7.34M (liquid)
- Payoff in 5% downside scenario: $763.78 → $725.59 → max(0, 725.59 - 765) = $0 (no intrinsic value)
- This contract offers high leverage and liquidity, ideal for short-term bearish bets as the stock tests key support levels.

• META20250822C767.5
- Call Option, Strike: $767.5, Expiry: 2025-08-22
- IV: 29.81% (moderate), Leverage: 84.39%, Delta: 0.456640 (moderate), Theta: -3.815424 (high decay), Gamma: 0.014885 (high sensitivity)
- Turnover: $1.95M (liquid)
- Payoff in 5% downside scenario: $763.78 → $725.59 → max(0, 725.59 - 767.5) = $0 (no intrinsic value)
- This contract’s high leverage and gamma make it a top pick for aggressive short-term bearish positioning, given the regulatory overhang.

Action Alert: Aggressive bears should consider META20250822C765 into a breakdown below $750. If the stock closes below $742.5 (key support), the META20250822C745 call could offer a 44% price drop trade.

Backtest Meta Stock Performance
After a -3% intraday plunge, META has historically shown positive short-to-medium-term gains. The 3-Day win rate is 56.49%, the 10-Day win rate is 59.87%, and the 30-Day win rate is 68.13%. This indicates that META tends to recover and even exceed its previous price levels in the following days.

Regulatory Risk Dominates Short-Term Outlook – Watch for $742.5 Support Breakdown
Meta’s selloff is driven by regulatory uncertainty and investor skepticism about its AI governance. While the stock’s long-term bullish trend remains intact (MACD at 20.15, 200-day average at $638.99), the immediate focus is on whether $742.5 support holds. A breakdown below this level could trigger a test of the 200-day support at $594.58. Investors should monitor the sector leader Alphabet A (GOOGL), which is up 0.09%, for broader sentiment cues. For now, short-term bearish options and leveraged ETFs like FBY and METW offer the most direct exposure to the near-term volatility. Watch for $742.5 breakdown or regulatory reaction.