We recently published a list of the Top 10 Overbought AI Stocks in 2024. Since Meta Platforms Inc (NASDAQ:META) ranks 3rd on the list, it deserves a deeper look.
The second half of 2024 is here and rate cuts from the Federal Reserve remain elusive, with warnings about valuations and AI-led market hype growing louder. A number of notable Wall Street analysts have recently warned that the markets remains more concentrated than ever where just a few stocks account for most of the gains, thanks to their dominance in the AI industry. Many also believe the market is up for a correction as it has entered the overbought territory. Financial services company BTIG recently said in a report that the world’s fifth-largest exchange-traded fund by assets under management (AUM), QQQ Trust Series 1, now trades “well into” overbought territory based on its Relative Strength Index technical indicator. QQQ tracks the Nasdaq-100 Index and it’s not surprising to see the ETF showing signs of being overbought as more and more investors pile into mega-cap tech stocks in order to ride the AI bandwagon.
For this article we scanned the holdings of the Invesco QQQ Trust Series 1 ETF and picked top technology holdings of the fund with higher Relative Strength Index (RSI) values. Usually, an RSI value of 60 and above shows a stock is overbought. We have also mentioned the number of hedge fund investors with these stocks. 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: 246
Meta Platforms Inc (NASDAQ:META) is an important constituent of the QQQ which is overbought now according to investment firm BTIG. While Meta Platforms Inc’s (NASDAQ:META) RSI value of 55 is not outlandishly high, it’s still worse than 70% of the 600 companies in the interactive media industry, according to data from GuruFocus.
Meta is using AI for optimizing ad targeting and recommendation systems to boost engagement and ads revenue. In the first quarter, Meta Platforms Inc’s (NASDAQ:META) revenue jumped 27% to $36.5 billion. A whopping 97% of this revenue came courtesy of ads. In 2024, Meta Platforms Inc’s (NASDAQ:META) ads revenue is expected to rise by 17%. Reels, which is posting solid numbers and engagement lately, saw a 20% ad load in the first quarter, compared with 16.2% in the same quarter last year. Meta Platforms Inc (NASDAQ:META) recently posted speculator Q1 results but the stock slipped after the company revealed that Meta Platforms Inc’s (NASDAQ:META) CapEx will come in the range of $35 billion to $40 billion, higher than the previous forecast of $30 billion to $37 billion. However, long-term analysts believe since most of this spending will go into AI projects, it’ll bode well for the stock down the road.
Based on its 2025 EPS estimate of $23.11 set by Wall Street, Meta Platforms Inc. (NASDAQ:META) is trading at a forward P/E of 21, which makes the stock attractively valued given Meta’s earnings are expected to grow 14.50% next year and by 30% over the next five years on a per-annum basis.
RGA Investment Advisors stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its first quarter 2024 investor letter:
“We believe this section is crucial for highlighting some of the key lessons we have learned since 2022. At the outset, let us clarify that Meta Platforms, Inc. (NASDAQ:META) remains one of our three largest positions, fluctuating based on daily market movements. As you read this, it might in fact be our largest holding. In the closing remarks of our Q4 2022 commentary, we noted that we had “made…META substantially larger” during the quarter. Never did we expect the stock to generate such substantial returns in a short period of time. Between Mark Zuckerberg’s “Year of Efficiency,” a recovery in the digital ad market and an improving macro backdrop, META’s key multiples recovered to a comfortable level within their long-term ranges:
Although these multiples are now back to “normal” levels, they are hardly expensive for a company whose top line growth re-accelerated into the double digits, with operating leverage and despite ongoing heavy investments in the Reality Labs segment. These are the reasons why we continue to hold a large position in META. As for why we did some selling, we want to emphasize a few key points:…” (Click here to read the full text)
Overall, Meta Platforms Inc (NASDAQ:META) ranks 3rd on Insider Monkey’s list titled Top 10 Overbought AI Stocks in 2024. 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 Platforms Inc (NASDAQ: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.
