Meta Platforms (NASDAQ:META) is a multinational technology company that owns several social media platforms, including Facebook, Instagram and WhatsApp. The stock’s performance is excellent, up 82.17% over the past year. The company’s acceleration is driven mainly by its advancements in the artificial intelligence (AI) industry. Meta constantly invests in and develops its products with the most up-to-date technology, such as the introduction of Llama 3 and the updated version of Meta AI Assistant.
Meta could continue to perform well with those catalysts. Meta’s expected price target is $581.89 per share, a 21.7% upside from its current price. Meta should be a buy, a top pick for investors in the long term.
Catalyst for Growth
Meta has invested intensively in its AI development. Its latest AI product is Llama 3 introduced in April. Llama 3 is the third version of Llama, which stands for Large Language Model Architecture. It is designed to support and provide an efficient tool for businesses to solve complex problems involving language, such as brainstorming ideas, coding, summarizing documents, etc.
Llama 3 is available on different platforms, including Amazon’s (NASDAQ:AMZN) AWS, Nvidia‘s (NASDAQ:NVDA) NIM, and Microsoft‘s (NASDAQ:MSFT) Azure. Meta also makes Llama 3 available for unrestricted commercial use, encouraging developers and businesses to use and enhance the model.
Moreover, Meta also integrated Llama 3 into its updated version of Meta AI Assistant. Similar to OpenAI‘s ChatGPT or Google’s Gemini, Meta AI is designed to support users in every aspect, from simple searches to complex tasks like generating images, solving math problems and managing schedules. Meta AI is incorporated into all of Meta’s social media platforms allowing users to access and ask for information while using Facebook or Instagram without needing to switch apps.
I believe Meta is just getting started with its Meta AI Assistant feature. It holds potential for the company’s continued expansion of its product internationally. It also indicates Meta’s strategic vision in developing its AI capabilities for its social media platforms to adapt to user demands. Meta could increase its active user base, ultimately a good sign for future revenue growth.
Moreover, Meta is also looking for a partnership with Character.ai, a platform that uses AI chatbots to create characters. Although there is no formal agreement between the two companies, it offers Meta the chance to enhance and innovate its current AI products. This could strengthen Meta users’ engagement and generate more revenue through advertising.
An Enticing Valuation
The company presents a robust financial performance. In its recent first-quarter earnings, revenue was $36 billion, a solid 27% increase year-over-year (YoY). More than 90% of the revenue came from advertising. It shows Meta’s ability to monetize its extensive user base. Diluted earnings per share (EPS) is $4.71, a significant 114% increase from last year. The substantial EPS growth highlights Meta’s improvement in operations and generating profit.
Revenue is forecast to grow 18% for the full year due to its expansion into AI and the monetization of its user base. Moreover, as Meta focuses on investing in developing its AI models, I expect the capital expenditure margins to be 60%. The weighted average cost of capital (WACC) is 9.7%. WACC is calculated based on the cost of equity of 9.9% and the after-tax cost of debt of 1.25%. The forecasted equity value per share for Meta is $581.89. This is a 21.7% upside from Meta’s current price of $478.22.
The Bottom Line on META Stock
There are risks for Meta. As a multinational company, Meta’s social media platforms have users from many countries with other cultures. The company must ensure its regulations meet each country’s cultural differences and laws. For example, the European Union investigated Meta and others for failing to comply with the Digital Markets Act (DMA). Non-compliance with those laws can negatively impact Meta’s operations and reputation.
Overall, though, Meta’s investment in AI suggests substantial growth opportunities, particularly due to its newly introduced Llama 3 models and Meta AI. With its entry into the AI race, Meta could improve many of its products and expand its user segments internationally.
If Meta can adapt and adjust to comply with laws in different countries, this will further enhance and accelerate its growth. The social media platform has so far proved adept at doing so. I believe Meta Platforms should be a buy.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
