3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 219
Cantor Fitzgerald recently said in a note that Meta Platforms Inc (NASDAQ:META) has “plenty of levers” to capture share gains. The firm added the stock to its top picks list and gave an Overweight rating.
Cantor Fitzgerald believes AI deployment can deliver incremental engagement, monetization, and revenue growth over the next 2–3 years.
Meta Platforms Inc (NASDAQ:META) continues to gain attention from Wall Street analysts thanks to its explosive AI potential.
D.A. Davidson analysts started covering Meta Platforms Inc (NASDAQ:META) with a “buy” rating, naming it a top pick among mega-cap stocks. They believe Meta is positioned to lead in open source for two key tech platforms: AI Foundation Compute and Spatial Compute.
D.A. Davidson analysts said that while past tech innovation was driven by startups, the scale and capital required for AI and Spatial computing mean only megacap companies can dominate. While companies like Alphabet, Apple, Amazon, and Microsoft are focused on closed platforms, Meta Platforms Inc (NASDAQ:META) leads the open-source side.
The firm praised Meta’s open-sourcing of AI tools like Llama, PyTorch, and FAISS, which they say has positioned the company as the leader in AI foundational model compute. Meta Platforms Inc’s (NASDAQ:META) advancements in AI have already improved ad delivery and returns, making it easier to justify its AI investments and open-source strategy.
On Spatial computing, D.A. Davidson pointed to Meta Platforms Inc’s (NASDAQ:META) heavy spending on Reality Labs as strengthening its position as the open-source counterpart to Apple’s closed ecosystem. They also commended CEO Mark Zuckerberg’s leadership in navigating challenges.
Davidson set a price target of $600 for Meta Platforms Inc(NASDAQ:META).
Meta Platforms Inc (NASDAQ:META) crushed past analyst estimates for its latest quarterly results, giving signs that the huge AI spending it’s doing would bear more results in the future.
The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.
But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.
Mar Vista Focus strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom and Meta Platforms, Inc. (NASDAQ:META). We previously divested from Meta during a period of stagnant advertising growth and the company’s initial, significant investment in the metaverse project. At that time, investors appeared complacent to the risks associated to an increasingly competitive landscape, and the Street’s robust financial expectations as the company transitioned towards monetizing short-format video (Reels). The subsequent decline in Meta’s stock price during 2022 reflected these concerns.
Since then, Meta has demonstrably shifted its strategic focus. The company has prioritized operational efficiency, implemented strategies to monetize Reels effectively, and initiated a robust artificial intelligence (AI) development program. We believe the focus on AI represents a more prudent capital allocation strategy compared to the earlier metaverse initiative. Meta AI holds significant potential to unlock substantial monetization opportunities and enhance user engagement, while maintaining tight controls on operating costs…” (Click here to read the full text)
