We recently published a list of Top 10 AI Stocks to Watch After Latest Earnings and Analyst Ratings. Since Meta Platforms Inc (NASDAQ:META) ranks 1st on the list, it deserves a deeper look.
Tom Lee, Fundstrat Global Advisors co-founder, said while talking to CNBC in a latest program that the next few weeks until the US election would be “confusing” for many since no one could say anything with conviction about who is going to be in the White House.
Lee said that the market is going to trade “well” into the upcoming Fed meeting where he expects “some” rate cuts amid the labor market needing support and positive inflation data. Asked whether he expects a 25bps rate cut or a 50bps cut, Lee said:
“ A 25 or 50 can have both hawkish or dovish implications so I think it’s ultimately whether Fed Chair Powell comes across as this is the start of a cycle they are confident that we are moving back towards neutral and whatever number they make is quite dovish and positive but if it seems like that it’s dragging along the FOMC members and then there is even concerns about hard landing then I think the market can view anything they do as negative,” Lee said.
However, Lee said he believes the outcome would be positive.
For this article, we chose the top 10 buzzing AI stocks on the back of the latest earnings and analyst ratings. With each company, we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 219
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 mega-cap 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.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text)
Overall, Meta Platforms Inc (NASDAQ:META) ranks 1st on Insider Monkey’s list titled Top 10 AI Stocks to Watch After Latest Earnings and Analyst Ratings. While we acknowledge the potential of Meta Platforms Inc (NASDAQ:META), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.