Meta Platforms (NASDAQ:META), formerly known as Facebook, won an upgrade from JPMorgan, sending META stock up about 2.3% overnight. The company’s shares were trading at about $119 per share early on Dec. 16. That gives it a market capitalization of about $316 billion. At its peak, META stock was worth over $1 trillion.
JPMorgan analyst Doug Anmuth moved his rating to “overweight” from “neutral,” praising the company’s “financial discipline” in the wake of a 13% reduction of headcount. The bank’s one-year price target on the stock is $150 per share.
Fall of a Cloud Czar
Meta is one of the five companies I have called “Cloud Czars” because they own the enormous networked data centers that define today’s internet. In Meta’s case there are 21 such centers, almost all in the U.S. except for one each in Ireland, Denmark and Singapore. The company put $9.5 billion of capital into the data centers in the third quarter, with plans to build more.
Despite its size, Meta is the smallest of the Czars. The others are Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). All are down substantially this year, with Amazon losing half its value. Apple and Meta do not resell their cloud capacity, although Meta does resell its network. Amazon, Microsoft and Google dominate the market for cloud capacity rental.
Meta fell heavily mainly on CEO Mark Zuckerberg’s investment in the virtual reality metaverse. The JPMorgan analysts are looking toward Facebook Messenger and WhatsApp for revenue gains next year. Zuckerberg has said the two applications are still in the “early stages” of monetization.
Despite the location of Meta’s cloud footprint, its social network services have lost market share in the West. But its free services remain vital to the global South. People in Africa, India and Southeast Asia, who can barely afford the cheapest phones and broadband connections, connect to the world economy through free Meta services.
What Happens Next for META Stock?
Meta and the other Czars remain highly profitable. Meta’s 36 analysts expect earnings of $2.22 per share this quarter and $7.86 per share next year on $121 billion of 2023 revenue. That gives META stock a forward price-to-earnings (P/E) ratio of 15 times. The current average P/E ratio of the S&P 500 is 20.18 times.
JPMorgan may have jumped the gun on its upgrade, but possibly not by much.
On the date of publication, Dana Blankenhorn held long positions in AAPL, MSFT, GOOGL, and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.