Meta Platforms (META) Just Called a Potential Loss “Astronomical.” Here’s What’s at Stake in California

Fatima Gulzar

Fri, August 28, 2026 at 7:53 PM GMT+3 3 min read

META +0.78%

Opening arguments began in a California-led trial against Meta Platforms, Inc. (NASDAQ:META), brought by a coalition of 29 state attorneys general alleging the company designed Facebook and Instagram to be addictive to children and teens. New Mexico's attorney general warned the consequences for Meta could be "astronomical."

Why This Matters

Meta already lost a case in New Mexico that will cost it nearly $1 billion, but California's case, backed by far more states and a much larger population, could be dramatically more expensive.

That raises the real question: is Wall Street underpricing the real financial risk of this trial, or is the New Mexico result already the worst case investors need to worry about?

Meta Platforms, Inc. (META) Just Called a Potential Loss "Astronomical." Here's What's at Stake in California

What Worked for The Company

As of August 17, Meta Platforms, Inc. (NASDAQ:META)'s stock is down only 12.52% this year. Even though the mounting legal pressure and most analysts' concern so far have focused on Meta's AI infrastructure spending, which could reach $145 billion this year, rather than fears about the ad business itself. Meta has said the state coalition's "limited claims are unsubstantiated and their financial demands are vastly disproportionate." The New Mexico judge already ruled some of the plaintiffs' broader design-change requests would be unfair since rivals like TikTok and YouTube would keep the same features.

What Didn't Work for The Company

New Mexico Attorney General Raúl Torrez, fresh off winning nearly $1 billion from Meta in his state alone, warned "you could wake up with a headline judgment that is...astronomical," and said mapping that result onto a state as large as California could be "a potentially massive and market-shifting force." Meta Platforms, Inc. (NASDAQ:META)'s own attorneys have said the consolidated case could lead to damages as high as $1.4 trillion. The states' own lawyers estimate a more likely $200 billion. Meta gets 98% of its revenue from online advertising, an extraordinarily concentrated exposure to whatever penalties this case produces. UCLA's Julia Powles said, "California matters more than any other jurisdiction in the U.S."

Insider Monkey's Hedge Fund Data

Meta Platforms, Inc. (NASDAQ:META) was held by 262 hedge funds as of Q1 2026, up from 256. Alphabet, a co-defendant in a related Los Angeles case, was held by 265, down from 288.

Conclusion

Meta's stock price suggests investors see this as a manageable legal risk. Nonetheless, the size of the numbers being discussed, from $200 billion to $1.4 trillion, means this trial alone could move the stock far more than any single quarter of AI spending news.

While we acknowledge the potential of META as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on thebest short-term AI stock.

Disclosure: None. This article is originally published at Insider Monkey.