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META Seems to Lose Some Shine: Is the Stock Suffering From AI Fatigue?
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Meta Platforms (META - Free Report) shares have returned 7.6% in the past month, underperforming the Zacks Computer & Technology sector’s return of 9.7% and the Zacks Internet Software industry’s appreciation of 12.5%. Except for Amazon (AMZN - Free Report) , it has outperformed the rest of “Magnificent 7” over the same time frame.
The social media giant seems to have lost some shine in recent times, which can be attributed to increasing AI fatigue among investors. Technology stocks, including META, have been benefiting from a strong AI-fueled rally, which, however, seems to be losing steam due to rising weariness and skepticism over AI’s continuous hype and promises.
In fact, the Magnificent 7 group, which includes Google and YouTube parent Alphabet (GOOGL - Free Report) , Microsoft, NVIDIA (NVDA - Free Report) , Apple and Tesla (TSLA - Free Report) apart from Amazon and META, is facing headwinds from the cooling-off in AI-fueled rally.
The question now arises for investors - are META’s AI initiatives good enough to drive share price higher in the rest of this year? Let’s analyze.
META’s Data Trove Makes the Stock an AI Behemoth
AI is heavily dependent on data, of which META has a trove driven by its more than 3.2 billion daily users. Meta Platforms has been leveraging AI to improve the potency of its platform offerings, including WhatsApp, Instagram, Messenger and Facebook.
Its staggering reach and increasing ad impressions (up 10% year over year in second-quarter 2024) make META one of the most important players in the digital ad sales market apart from Alphabet.
META’s advertising revenues (99% of Family of Apps revenues) increased 21.7% year over year to $38.33 billion and accounted for 97.9% of second-quarter revenues. At constant currency, revenues increased 23% year over year.
META Underperforms Sector in the Past Month
Image Source: Zacks Investment Research
Increasing Regulatory Concern: A Headwind for the META Stock
META is facing regulatory issues related to data privacy and security globally. Its business model relies on the collection, storage and utilization of vast amounts of personal data that raises questions about consent and transparency. Increasing regulatory headwinds have been a constant bother for META investors.
Meta Platforms is aggressively spending on developing AI infrastructure and now expects to spend between $37 billion and $40 billion on these efforts in 2024. This should not be a concern for investors given its strong cash balance of $58.08 billion as of June 30, 2024.
Meta now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern.
Will META’s AI Initiatives Aid Prospects?
Meta Platforms is leveraging AI to boost Facebook’s appeal among young adults (18-29-year-olds), a demography that used to prefer Alphabet’s YouTube and Snapchat. META is incorporating AI tools into WhatsApp to make businesses more customer-oriented.
It has started rolling out Meta AI and is on track to achieve its goal of becoming the most used AI assistant by the end of the year. Meta AI is currently available in more than 20 countries and eight languages. In the United States, Meta Platforms is rolling out new features like Imagine edit, which allows people to edit images they generate with Meta AI.
META’s Llama family of foundation models has been a game changer. The latest Llama 3.1 includes the first frontier-level open-source model, as well as new and industry-leading small and medium-sized models. It is already working on Llama 4, which is expected to boost META’s capability in the long run.
META’s Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for 2024 earnings is pegged at $21.23 per share, up 3.3% over the past 30 days, indicating a 42.77% year-over-year increase.
The consensus mark for third-quarter 2024 earnings is pegged at $5.12 per share, up 5.3% over the past 30 days, indicating a 16.63% year-over-year increase.
META Stock Overvalued
However, META stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, META is trading at 7.32X, higher than its median of 7.08X and the Zacks Computer & Technology sector’s 2.52X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
META’s growing footprint among young adults driven by improving recommendations boosts competitive prowess. AI usage is making it a popular name among advertisers that is expected to drive top-line growth.
However, monetization of its AI services is expected to take several years, which investors should keep in mind before investing. Rising regulatory concern is a significant concern.
Image: Bigstock
META Seems to Lose Some Shine: Is the Stock Suffering From AI Fatigue?
Meta Platforms (META - Free Report) shares have returned 7.6% in the past month, underperforming the Zacks Computer & Technology sector’s return of 9.7% and the Zacks Internet Software industry’s appreciation of 12.5%. Except for Amazon (AMZN - Free Report) , it has outperformed the rest of “Magnificent 7” over the same time frame.
The social media giant seems to have lost some shine in recent times, which can be attributed to increasing AI fatigue among investors. Technology stocks, including META, have been benefiting from a strong AI-fueled rally, which, however, seems to be losing steam due to rising weariness and skepticism over AI’s continuous hype and promises.
In fact, the Magnificent 7 group, which includes Google and YouTube parent Alphabet (GOOGL - Free Report) , Microsoft, NVIDIA (NVDA - Free Report) , Apple and Tesla (TSLA - Free Report) apart from Amazon and META, is facing headwinds from the cooling-off in AI-fueled rally.
The question now arises for investors - are META’s AI initiatives good enough to drive share price higher in the rest of this year? Let’s analyze.
META’s Data Trove Makes the Stock an AI Behemoth
AI is heavily dependent on data, of which META has a trove driven by its more than 3.2 billion daily users. Meta Platforms has been leveraging AI to improve the potency of its platform offerings, including WhatsApp, Instagram, Messenger and Facebook.
Its staggering reach and increasing ad impressions (up 10% year over year in second-quarter 2024) make META one of the most important players in the digital ad sales market apart from Alphabet.
META’s advertising revenues (99% of Family of Apps revenues) increased 21.7% year over year to $38.33 billion and accounted for 97.9% of second-quarter revenues. At constant currency, revenues increased 23% year over year.
META Underperforms Sector in the Past Month
Image Source: Zacks Investment Research
Increasing Regulatory Concern: A Headwind for the META Stock
META is facing regulatory issues related to data privacy and security globally. Its business model relies on the collection, storage and utilization of vast amounts of personal data that raises questions about consent and transparency. Increasing regulatory headwinds have been a constant bother for META investors.
Meta Platforms is aggressively spending on developing AI infrastructure and now expects to spend between $37 billion and $40 billion on these efforts in 2024. This should not be a concern for investors given its strong cash balance of $58.08 billion as of June 30, 2024.
Meta now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern.
Will META’s AI Initiatives Aid Prospects?
Meta Platforms is leveraging AI to boost Facebook’s appeal among young adults (18-29-year-olds), a demography that used to prefer Alphabet’s YouTube and Snapchat. META is incorporating AI tools into WhatsApp to make businesses more customer-oriented.
It has started rolling out Meta AI and is on track to achieve its goal of becoming the most used AI assistant by the end of the year. Meta AI is currently available in more than 20 countries and eight languages. In the United States, Meta Platforms is rolling out new features like Imagine edit, which allows people to edit images they generate with Meta AI.
META’s Llama family of foundation models has been a game changer. The latest Llama 3.1 includes the first frontier-level open-source model, as well as new and industry-leading small and medium-sized models. It is already working on Llama 4, which is expected to boost META’s capability in the long run.
META’s Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for 2024 earnings is pegged at $21.23 per share, up 3.3% over the past 30 days, indicating a 42.77% year-over-year increase.
The consensus mark for third-quarter 2024 earnings is pegged at $5.12 per share, up 5.3% over the past 30 days, indicating a 16.63% year-over-year increase.
META Stock Overvalued
However, META stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, META is trading at 7.32X, higher than its median of 7.08X and the Zacks Computer & Technology sector’s 2.52X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
META’s growing footprint among young adults driven by improving recommendations boosts competitive prowess. AI usage is making it a popular name among advertisers that is expected to drive top-line growth.
However, monetization of its AI services is expected to take several years, which investors should keep in mind before investing. Rising regulatory concern is a significant concern.
META currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.