Meta Platforms (NASDAQ:META) stock has been a standout performer in the tech sector this year, gaining 110% while the rest of the market is up around 10%.
Renewed interest in growth stocks, impressive earnings results, and the buzz surrounding its AI ventures appear to be key driving factors for Meta. Thus, it appears there are multiple catalysts that could see this rally continue from here.
So, is Meta stock still a wise investment after its rapid and significant growth? Let’s explore the positive and negative factors that may influence its performance before making a decision.
A Review of Meta’s Q1 Results
Meta exceeded Wall Street’s expectations with its first-quarter results, driving a significant surge in its stock during after-hours trading.
The company revealed that Facebook’s monthly active user base approached 3 billion, and its revenue guidance for the current quarter exceeded analyst estimates.
CEO Mark Zuckerberg highlighted the positive impact of their AI efforts on their apps and business, emphasizing increased efficiency and faster product development to align with their long-term vision.
Meta Platforms provided strong revenue guidance for the current quarter, anticipating a range between $28.5 billion and $32 billion. This surpasses analyst expectations of $29.45 billion.
What Can Affect Meta?
Meta’s ability to maintain revenue growth become more challenging as a recession looms. Particularly as the digital advertising industry faces macroeconomic challenges.
Although Meta achieved 3% year-over-year revenue increase in the first quarter, surpassing $28.6 billion in sales, industry conditions could pose obstacles to further growth.
A potential recession and Meta’s costly metaverse investments pose challenges to its profitability, relying on the ads industry for earnings.
Inflation concerns persist, with potential implications for Meta and other growth stocks if the Federal Reserve continues to raise interest rates.
Meta Still Stands Strong
Despite a 24% decline in net income year over year, Meta’s first-quarter profit stood at $5.7 billion. This highlights its resilience and ability to adapt in the face of challenges.
With potential short-term challenges and a potential recession affecting profitability, Meta’s shares remain reasonably priced at less than 22-times this year’s expected earnings and around 14 times next year’s projected profit.
As the digital ads market recovers and Meta’s core social media businesses remain robust, the company has the potential to bounce back and deliver stronger performance.
Meta continues to dominate the social media landscape. It had a 5% increase in total daily active users across platforms like Facebook, Instagram, and WhatsApp, reaching an impressive 3.02 billion in the first quarter.
With its robust technology capabilities and vast data resources, Meta Platforms has the potential to emerge as a major player in the AI revolution.
Leveraging AI, the company is enhancing content feeds, refining ad targeting, and even preparing to introduce virtual assistants and support agents for users and businesses.
AI also offers the opportunity for significant margin enhancements, making it a promising efficiency driver for Meta.
Despite a significant rally this year, Meta Platforms’ stock remains approximately 35% below its peak. The company showcases adept cost management, while its social media and communication platforms sustain impressive engagement.
Investments in emerging technologies hold the potential for greater returns than the market currently anticipates. Although Meta shares are no longer an absolute bargain, they still offer long-term investors an opportunity for substantial gains over the long-term.
On the date of publication, Chris MacDonald has a position in META. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.