We recently published a list of Top 10 Latest AI News, Earnings and Analyst Ratings You Should Not Miss. Since Meta Platforms Inc (NASDAQ:META) ranks 3rd on the list, it deserves a deeper look.
Tech stocks are continuing to decline amid fears the Fed is taking too long to begin interest rate cuts, stoked by the latest jobs data that showed unemployment is rising. However, some analysts believe the latest decline in AI stocks is part of a normal market rotation and gives investors an opportunity to buy. While talking to CNBC in a latest program, Michael Landsberg of Landsberg Bennett Private Wealth said that the latest decline is a “little bit of a reset, obviously.” The analyst said that AI stocks had a “great run” and the latest pullback is a “typical process” of market rotation.
“It doesn’t mean we are not positive longer term on AI but when you have big runs like that that’s why you rebalance portfolios to keep the risk in check,” Landsberg said.
Asked if the AI bubble has popped and this is the end of the AI hype, the analyst said “absolutely not” and called the recent pullback “deceleration” from growth and “normalization.”
Landsberg said that the earnings season will “separate the wheat from the chaff” and believes major tech companies will still drive earnings in the future.
For this article, we scanned the latest AI news, earnings, and analyst ratings and picked the 10 biggest stocks moving on these developments. 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: 246
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. After the results, Citi said it remains “incrementally positive” on Meta Platforms Inc (NASDAQ:META) shares due to engagement and monetization gains, along with expanding margins. The firm raised its price target for META to $580 from $550.
JPMorgan said it sees AI benefiting Meta Platforms Inc (NASDAQ:META) at three levels: core Family of Apps (FoA) improvements, new opportunities and experiences, and scaling the Metaverse. It also upped META price target to $610 from $480.
Morgan Stanley also liked how Meta Platforms Inc (NASDAQ:META) is improving its recommendation systems and quality with AI.
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.
Polen Focus Growth Strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: Home Depot, Meta Platforms, Inc. (NASDAQ:META), and AbbVie. Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
Overall, Meta Platforms Inc (NASDAQ:META) ranks 3rd on Insider Monkey’s list titled Top 10 Latest AI News, Earnings and Analyst Ratings You Should Not Miss. 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.