Meta Platforms (NASDAQ:META) is among the mega-cap tech stocks that have seen significant gains over the past year. Indeed, a near-doubling of META stock from a low of $274.38 to $542.81 per share in July is incredible. And unlike many tech stocks rising due only to AI tailwinds, Meta’s growth has been largely driven by its success in digital advertising, with industry spending up 12% in 2023. That’s not to say there’s no AI component to this company’s recent growth.
Meta’s recent earnings growth was primarily driven by disciplined cost management, including strict hiring controls. CFO Susan Li emphasized prioritizing expenses to invest in AI infrastructure. CEO Mark Zuckerberg noted that the company’s AI investments are yielding results, with Meta AI on track to become the most-used AI assistant by year-end. Additionally, Meta’s AI-infused smart glasses, launched last year, have seen strong demand, outpacing production.
Meta is expected to thrive, with digital-ad spending projected to continue growing, leading analysts to recommend a “buy” with a target price of $570. As digital ads and AI expand, Meta appears to be a strong long-term investment.
Financials Getting Stronger
As a parent company to the top three social media platforms Instagram, Facebook and WhatsApp, Meta is starting strong. The company reported 3.27 billion daily users, $39.1 billion revenue and $13.5 billion in net income. Despite a slight 1% reduction in headcount, Meta’s profits have increased significantly. Currently, Meta holds $58.08 billion in cash, paid $1.27 billion dividends, and delivered stock buybacks worth $6.32 billion. Up 28% in 2024, META stock now trades at a forward price-earnings multiple of just 25-times, which is reasonable considering its growth rate.
Despite higher spending, Meta’s revenue and profitability have comfortably covered its costs. Zuckerberg highlighted the quarter’s success and with Meta AI’s growth, it suggests the AI investments are proving valuable.
Meta narrowed its Q3 revenue guidance to $38.5 billion to $41 billion, marking a potential 24% year-over-year increase. The company anticipates 2024 capital expenditures of $37 billion to $40 billion and expects significant spending growth in 2025 to bolster AI research and product development. This comes as Meta continues to expand its top line and margins while planning increased investments for future growth.
Ad Targeting the Under-18 Audience
A recent FT investigation revealed that Google and Meta targeted Instagram ads at teens on YouTube, bypassing Google’s under-18 rules. Using a category of “unknown” users –skewed towards minors — Meta’s Spark Foundry U.S. led the campaign from February to April, planning a broader rollout. Google has since launched an internal investigation and reportedly halted the project.
Google parent Alphabet (NASDAQ:GOOG, GOOGL) has stated it reviewed the policy breach claims and will enforce stricter training for sales reps to prevent targeting minors. Despite confirming the technical safeguards were effective, Google will further emphasize its ad policies. The “unknown” category includes users with unidentified demographics. Meta, meanwhile, defended its marketing to teens, emphasizing the apps’ social and community benefits.
New Platform for AI Content
On a more positive front, Meta recently introduced AI Studio, a new feature allowing users to create AI-based characters on Instagram, WhatsApp and Messenger. This innovation lets users build characters as extensions of themselves or based on their interests. Targeted primarily at creators with large followings, AI Studio enables personalized interaction with audiences, mimicking the voice and tone of the creators. Meta expects this feature to enhance user engagement while saving time for creators.
Creators used AI chatbots to handle simple direct messages or story replies from fans, without needing a subscription. AI Studio, powered by Meta’s Llama 3.1 language model, allowed for enhanced response accuracy and customization without requiring technical skills. Creators are now able to train their AI using their posts, reels, comments and other content, with the ability to limit audience interactions. Additionally, AI Studio let users create chatbots based on their interests, using Meta-provided prompts to facilitate interaction with generative AI.
META is a Strong Buy
Meta has swiftly adapted to TikTok’s challenges, driving innovation and better monetization through Reels. Despite reporting continued and significant losses from Reality Labs, the company’s core apps generated impressive revenue and operating income, enabling Meta to sustain heavy spending, stock buybacks and dividends.
Meta Platforms is a tech giant heavily investing in AI. Its open-source AI model, Llama 3.1, is a notable product. And the company’s strong financials and AI investment make it a promising AI stock. There are risks with this mega-cap tech stock, but at its current valuation, I think Meta Platforms remains a top pick for investors looking to identify a Magnificent 7 stock to buy and hold for the long-term.
On the date of publication, Chris MacDonald 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.
