Meta Stock's AI Edge: Why Wall Street Keeps Raising Targets
Meta Platforms NASDAQ: META continues to be one of the top-performing AI stocks. As of the Feb. 6 close, the shares have appreciated by 22%. That’s by far the best performance of any of the Magnificent Seven stocks. After the company’s recent earnings report, the stock has received many upgrades from Wall Street analysts. Since the release, 22 Wall Street analysts MarketBeat tracks have issued new price targets on the stock. Of them, 21 upgraded their targets; the other left it unchanged. Overall, the average of their new price targets implies an upside in the stock of 7%. That might not sound like much, but it's notable, considering that the company is among the most upgraded stocks on the market. This means that recently, once Meta reaches its price target, it will be upgraded again. This isn’t surprising, given the company’s strong earnings results.
Meta's Strong Earnings Results
In the final quarter of 2024, Meta’s revenues continued to grow strongly, up by 21%. In addition, its operating margin increased by 700 basis points from Q3 2023 and 500 basis points from just one quarter ago. Overall, the company’s diluted earnings per share (EPS) increased by 50%. Sales topped estimates by 3%, while EPS came in 19% above expectations.
Adding Value to Advertising Business
Merchants continue to recognize the value of advertising on Meta’s Family of Apps. Its average price paid per ad increased by 14%, a massive acceleration in growth compared to just 2% in Q4 2023. The company’s use of AI to push personalized advertisements on its platforms clearly resonates with ad purchasers.
AI Technology Driving Advertising Revenue Growth
One reason that the company is seeing continued pricing power and volume for its advertisements is its new machine learning system, Andromeda. Built in partnership with NVIDIA NASDAQ: NVDA, the system “enabled a 1,000x increase in the complexity of model we use for ads retrieval." The company’s advertising model essentially works as a top-down filter, generating many possible advertisements that could be shown to someone at the top and then filters them out to only show someone the best ads for them.
Future Growth and Investment
Meta has many vectors through which it can continue to grow its business. Given the demonstrated success the company has shown in using AI in its advertising business, its revenue per ad can continue to expand meaningfully. The monetization of Instagram Reels and the Threads app are further opportunities to fuel advertising revenue growth. Long-term monetization can also come from its Llama model and Meta AI. Additionally, the company’s Reality Labs segment, which makes virtual reality hardware, lost nearly $18 billion in 2024. Eventually, turning this around would be a big boon to the stock.
