Why META Stock Still Has Room to Rise in the AI-Driven Market

Meta-platforms META and its Magnificent 7 counterparts have enjoyed a strong run-up over the past year. META stock, in particular, is up more than 52% for the year, far outpacing the broader market’s 21% gain. After last year’s incredible run-up, many are wondering 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 would be remiss if I didn’t acknowledge that the stock market is likely overbought after the AI-powered rally over the past two years. Meta has been one of the biggest beneficiaries of this uptrend, alongside several other players that have ridden the wave, seeing their stock values soar to unprecedented highs.

In recent months, the market’s attitude toward AI has shifted toward a “show me” mentality. As a result, companies that can deliver tangible results from their AI initiatives are likely to fare significantly better than others. In this context, is Meta up to the challenge? Absolutely.

Deadly Combo: AI’s Network Effect Meets a Family of Applications

Meta Platforms is a titan in the social media space, offering a range of services that could make even the most formidable tech giants sweat.

Its powerful portfolio, called “Family of Apps,” needs no introduction, and includes giants like Facebook, Instagram, WhatsApp, and Messenger. In the first quarter (Q1), its portfolio attracted a staggering 3.24 billion daily active users, an increase of 7% on a year-over-year basis. Given the law of large numbers, 7% growth is considerable.

With such a large user base, Meta is easy to understand. Consider a service like Facebook, which has evolved over the years to serve a wide variety of users. It started as a tool for building personal connections, but today it is arguably the largest digital marketing tool for businesses. Facebook and other apps benefit from higher user engagement, which ultimately attracts more advertisers, influencers, and other user groups, increasing their market share.

Perhaps the latest iteration of this never-ending growth story is generative AI, which is already having a material impact on its business. From boosting user engagement to exploring new territories like e-commerce and the metaverse, AI has been a game-changer for Meta. As a result, we’ve seen Meta beat both revenue and net income estimates for five consecutive quarters. In its most recent quarterly results, sales rose 27% to $36.46 billion, beating estimates by $231.9 million. Additionally, it posted an impressive EPS of $4.71, beating estimates by 35 cents.

The road ahead and market assessment

Moving forward, AI will be a major driver for Meta as it seeks to grow its market share across different technology sectors. This means Meta will invest tens of millions of dollars to improve its AI capabilities.

Meta forecasts full-year capital expenditures of $35 billion to $40 billion, up about 12% at the midpoint from its previous range. Some investors may have felt discouraged after hearing the hike, but the stock’s long-term thesis remains intact. Furthermore, as Mizuho Securities’ James Lee noted, despite the unexpected investment cycles, Meta’s revenue remains strong, which should alleviate those concerns.

AI will only further strengthen the company’s advantage over its peers, improving engagement and ad effectiveness. However, it’s unlikely we’ll see the full effects of its foray into AI for some time. As CEO Mark Zuckerberg said:

Building edge AI will also be a larger undertaking than the other experiences we’ve added to our apps, and it will likely take several years.

Still, I expect META stock to continue to rally as its AI-driven goals come to fruition. Over the past month, we’ve seen the stock take a breather, falling 5% after a monumental run over the past year. However, it still trades 12.1% behind its 52-week highs of $542.81.

META stock has been range-bound over the past 12 months and has been relatively volatile. However, it has been generally good, with market analysts predicting a double-digit upside from current levels. It is a consensus “Strong Buy” based on 44 analyst ratings, attracting a 13% upside from current prices.

META Action Review

No matter what the bears tell you, Meta is well positioned to continue delivering the goods to its shareholders. AI will play a major role in the next stage of the company’s growth, and the effects are already being felt.

Despite its substantial rally, there is still plenty of room to move higher from its current price. Insider trading has shown a clear positive trend, and with rate cuts looming, we should expect a strong rally in META stock. Keep in mind that between March 2020 and March 2022, when the Fed cut rates to between 0% and 0.25%, Meta stock jumped 53%.

As of the date of publication, Muslim Farooque did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines

As of the date of publication, the responsible editor did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Muslim Farooque is a passionate investor and an optimist at heart. A lifelong fan of video games and technology, he has a particular affinity for analyzing technology stocks. Muslim holds a Bachelor of Science degree in Applied Accounting from Oxford Brookes University.

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