Meta Platforms (NASDAQ:META) stock surged 129% this year, as investor piled into this metaverse-focused company for reasons completely separate from the company’s shift to becoming a metaverse company.
Rather, Meta’s cost efficiency focus, its AI-related investments, and the strength of its core business appear to be the reasons investors continue to put their money to work in this social media giant.
This year, META stock has surged 137% thanks to robust revenue, profits, and investments in generative AI like Llama 2. It’s a compelling choice for AI investors, surpassing hyped alternatives.
META Stock and the AI Race
Meta recently unveiled an advanced AI system aiming to rival ChatGPT-4’s capabilities, surpassing its prior “LLaMA 2” announcement.
Investors are responding positively to Meta’s efforts to compete with ChatGPT and OpenAI. Meta’s LLaMA 2 was trained on 70 billion parameters, while ChatGPT-4 boasts about 1.5 trillion parameters, highlighting the need for Meta’s advancements.
Meta is playing catch-up with its new AI project, but it won’t be ready until next year, potentially allowing ChatGPT to maintain its lead in the field.
Trust Its Robust Fundamentals
In my previous article, I mentioned how Meta’s financial health stands out in the tech sector, with a debt-to-capitalization ratio of just 21.6%. Its strong free cash flow of $24 billion in 2023 exceeds its $37 billion debt, enabling share buybacks and boosting stock prices. The company’s return on invested capital has historically ranged from 15% to 20%, ensuring favorable returns for shareholders.
Despite criticism of Meta’s metaverse investment, which hasn’t delivered expected profits, its ROIC remains strong at 14%. Facebook holds a substantial 53.1% market share in social media visits (excluding Instagram), providing diverse monetization opportunities beyond the metaverse.
Morgan Stanley’s (NYSE:MS) Brian Nowak reaffirms Overweight for Meta Platforms with a $375 price target. He foresees sustained revisions, boosting valuation multiples. Faster ad revenue growth, notably via core and Reels, could yield up to $20 EPS and around 40% upside.
Now uses C2M data to estimate it will contribute around $12 billion or 9% of Meta’s 2023 ad revenue, growing 36% year-over-year.
He expects continued C2M growth through investments in on-site objectives for lead generation and messaging app conversions. There’s potential for AI-powered agents in WhatsApp, Messenger, and Instagram to enhance search and shopping capabilities.
Meta is enhancing content recommendations, ad ranking, targeting, and measurement. If these boost core revenue beyond analysts’ estimates, there’s potential for upside. Facebooks’ 6% year-over-year growth in U.S. time spent on this platform suggests engagement-driven potential.
Experts don’t expect Threads to skyrocket immediately. Success takes time. Meta keeps advancing AI and earns revenue from its social media platforms. I agree with analysts’ optimistic outlook for Meta.
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.