Meta Platforms (NASDAQ:META) and its fellow Magnificent 7 companies have been on fire over the past year. META stock, in particular, is up over 52% for the year, head-and-shoulders above the broader market’s 21% gain. Following the incredible run-up in value last year, many are curious if Meta can maintain its momentum in the bull market. The short answer is yes, which makes Meta a buy at current prices.
However, I’d be remiss if I didn’t acknowledge that the stock market is likely overbought following the AI-fueled rally over the past couple of years. Meta was a major beneficiary of that uptrend, alongside several bandwagoners who rode the wave, seeing their stock values soar to unprecedented heights.
In the past couple of months, though, the market’s stance on AI has evolved into more of a ‘show me’ story. Therefore, businesses that can deliver tangible results from their AI initiatives are likely to fare substantially better than others. Considering this, is Meta up to the challenge? Absolutely.
Killer Combo: AI-Network Effect Meets Family of Apps
Meta Platforms stands as a titan in the social media realm, boasting a lineup that could make even the most formidable tech giants break a sweat.
Its powerful portfolio, called the ‘Family of Apps,’ needs no introduction, including giants like Facebook, Instagram, WhatsApp, and Messenger. As of the first-quarter (Q1), its portfolio attracted a mind-boggling 3.24 billion daily active users, a 7% increase on a year-over-year (YOY) basis. Given the law of large numbers, 7% growth is sizeable.
With Meta pulling in such massive user numbers, it’s easy to see the pervasive impact of the network effect. Take, for instance, a service like Facebook, which has evolved to serve a wide variety of users over the years. It started as a tool to build personal connections but now is arguably the biggest digital marketing tool for businesses. Facebook and other apps benefit from greater user engagement, which ultimately attracts more advertisers, influencers and other user groups, adding to its market share.
Perhaps the latest iteration in this never-ending growth story is generative AI, which already has a material impact on its business. From boosting user engagement to delving into fresh territories such as e-commerce and the metaverse, AI has been a game-changer for Meta. Consequently, we’ve seen Meta blowing past top-and-bottom-line estimates for five consecutive quarters. In its most recent quarterly earnings print, sales were up 27% to $36.46 billion, beating estimates by $231.9 million. Also, it posted an impressive EPS of $4.71, beating estimates by a comfortable 35 cents.
The Road Ahead and Market Valuation
Looking ahead, AI will be a major needle-mover for Meta as it seeks to further its market share across different tech verticals. That means Meta will invest tens of millions of dollars to enhance its AI capabilities.
Meta expects its full-year capital expenditures to hover between $35 billion and $40 billion, up roughly 12% at the midpoint from its previous range. Some investors may have had a sinking feeling after hearing about the bump, but the stock’s long-term thesis remains intact. Besides, as Mizuho Securities’ James Lee noted, despite the unexpected investment cycles, Meta’s revenue remains robust, which should put those concerns to rest.
AI will only build on the company’s moat against its peers, improving engagement and ad efficiency. However, we’re unlikely to see the full effects of its AI foray for some time. As CEO Mark Zuckerberg said:
Building the leading AI will also be a larger undertaking than the other experiences we’ve added to our apps, and this is likely going to take several years.
Nevertheless, I expect META stock to continue moving from strength to strength as its AI-powered goals come to fruition. Over the past month, we’ve seen the stock taking a breather, dropping 5% after a monumental run over the past year. However, it’s still trading 12.1% behind its 52-week highs at $542.81.
META stock has traded within a broad range over the past 12 months and has been relatively volatile. However, it’s been mostly good, with market analysts predicting a double-digit upside from current levels. It’s a consensus ‘ strong buy’ based on 44 analyst ratings, attracting a 13% upside from current prices.
Bottom-Line on META Stock
No matter what the bears tell you, Meta is poised to continue delivering the goods for its shareholders. AI will play a huge role in driving the next leg of growth for the company, and the effects are already showing.
Despite its substantial rise in value, there’s still plenty of room for it to run from its current price. Insider trading has shown a net positive trend and with rate cuts looming, expect a strong rally in META stock. Bear in mind that from March 2020 to March 2022, when the Fed slashed rates to between 0% and 0.25%, Meta’s stock jumped an eye-catching 53%.
On the date of publication, Muslim Farooque 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
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
