We recently compiled a list of the 10 Best Technology Stocks to Buy for Long Term. In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against the other technology stocks.
An Analysis of the Technology Industry
The technology industry is one of the key drivers of the global economy. According to MGI research, the global technology industry was valued at $8.51 trillion in 2022 and is forecasted to grow at a compound annual rate of 7.75% to reach $11.47 trillion by 2026. In the United States alone the information technology industry drives more than one-third of the national economy.
One of the latest trends in the tech industry has been the increasing investments in artificial intelligence by both tech giants and start-up companies. According to a July 3 report by Reuters, the US venture capital funding surged to $55.6 billion during the second quarter of 2024. The funding surged more than 47% on a quarterly basis and was mainly driven by significant investments in artificial intelligence companies including $6 billion raised by Elon Musk’s xAI.
However, over the past few months, the technology sector has seen a major sell-off due to what analysts call an “AI bubble”. The sell-off initiated with investors raising concerns over return on investment regarding the premium they have been paying as capital expenditure on artificial intelligence. On August 5, CNBC reported that the “Magnificent Seven” US tech companies lost a combined $1 trillion market value at the start of the trading day. As a result, NASDAQ was down 3%, marking the index’s steepest three-week slide in two years.
We recently covered the AI tech bubble in detail in 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst. Here’s a glimpse of the article:
“In the past few weeks, a major selloff in the technology sector, mostly over concerns about return on investments amid ballooning capital expenditures on artificial intelligence (AI), has hit the stock market, sending valuations crashing and igniting fears of an AI bubble at the marketplace that might be about to burst. However, Stacy Rasgon, who has covered semiconductor stocks, one of the most prominent sectors in the AI world, for over fifteen years, has advised investors to stay the course, terming fears of a bubble as overblown. Rasgon claims that even though chances of an air pocket, used to refer to stock plunges, are 100%, he is confident the time for them is not now. He pointed to the very real and massive AI data center build as an example, predicting it would go on for a few years, helping push AI stocks higher.”
Michael Landsberg, Landsberg Bennett Private Wealth CIO appeared on a CNBC interview to talk about the AI bubble. He believes that the AI bubble hasn’t popped yet and what we saw recently was a reset of the market, where the market resets out-of-sync factors, and does not mean that the analysts are not positive about AI. He further added that a lot of AI companies have had a great past six months and are growing their earnings. He believes that ultimately earnings drive any stock and as far as AI stocks are concerned their earnings are growing and will continue to grow, thereby increasing the price.
Moreover, Steve Eisman, Neuberger Berman Senior Portfolio Manager appeared on another CNBC interview termed the recent events as a “Psychological Rotation”. He mentioned that this was not a fundamental rotation, which could have been troublesome, rather it is a psychological rotation that will not hold for long. He further mentioned that Artificial intelligence is here to stay for years and he still sees massive growth opportunities for companies investing in AI.
Our Methodology
To compile the list of 10 best technology stocks to buy for the long term we used the Finviz and Yahoo Finance stock screeners. We searched for technology stocks and sorted them based on their market capitalization. From these stocks, we selected technology stocks that have been in business for 20 years or more and are expected to stay in business for several decades. Once we had the consolidated list, we ranked the stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care about what hedge funds do? 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).
A team of developers working in unison to create the company’s messaging application.
Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) is the owner of the world’s most engaging social media apps namely Facebook and Instagram, and two of the most commonly used messaging apps, WhatsApp and Messenger. The company is now eyeing to become a leader in AI chatbots. The stock was held by 219 hedge funds during Q2 2024, with total stakes worth $42.54 billion. Citadel Investment Group is the top shareholder of the company, with a position worth $6.27 billion.
Meta Platforms, Inc. (NASDAQ:META) has proved to be a leading technology company through its decade-long history of generating record revenues. Over the past 10 years the company has grown its top line by 31%, its bottom line by 36% and its levered free cash flow by 26%.
Much like its historic growth, the company continued to deliver robust growth during the most recent quarter i.e. Q2 2024. Its revenue grew 22% year-over-year to reach $39.1 billion. Management believes that two main factors drive revenue for the company. Number one is its ability to deliver an engaging experience and the second is its effective monetization of the engagement. And the quarterly results show that the company performed well in both the indicators.
The advertisement revenue was also up 22% year-over-year to reach $38.3 billion. On the other hand, even after being in business for a long time, Meta Platforms, Inc. (NASDAQ:META) still witnessed an increase in daily active users which surpassed 3.2 billion, with WhatsApp alone reaching over 100 million monthly active users.
The company is now focusing on artificial intelligence to enhance user experience and challenge the Magnificent Seven to become the most used AI assistant. The competitive edge of Meta Platforms, Inc. (NASDAQ:META) lies in the fact that AI is not one of its core businesses.
Yes, you read it right. The fact that AI is its core business and instead it generates most of the revenues from core social media platforms gives the company leverage to work on its AI large language model without the threat of losing revenue. Management has leveraged this edge to gain another strategic advantage by making its Llama model code open-source, allowing outside developers to make optimizations and improvements. Management believes open-source has the potential to improve the company’s language model much faster as compared to closed-sourced models.
In addition, Meta Platforms, Inc. (NASDAQ:META) Ray-Ban Meta Glasses and Quest 3 have become a hit sooner than expected and are contributing revenue growth to its Reality Labs division. The Reality Labs division witnessed a 27.8% year-over-year increase in revenue, amounting to $353 million during the quarter.
Based on the strong performance across the board, the net income also improved by an impressive 73% to reach more than 13 million. Moreover, the company also generated around $10.9 billion in free cash flow, giving it financial backing to invest in its AI ventures and return to its shareholders. Looking ahead, management believes next quarter revenue to be between $38.5 to $41 billion.
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 ranks 3rd on our list of the best technology stocks to buy for long term. While we acknowledge the potential of META as an investment, 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.
