3. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 219
Gene Munster, Deepwater Asset Management managing partner, while discussing Meta Platforms Inc (NASDAQ:META) latest products and the company’s competition with Apple during a program on CNBC, said:
“If you were going to think of this as kind of a match between Apple and Meta from that perspective, there has been more momentum around Meta Platforms Inc (NASDAQ:META) and innovation. And to the higher-level question—what’s more important to an investor, an innovative CEO or an operator? The answer is, it’s clearly an innovator. An innovator is more important. On that question, more specifically, an innovator is much more important.”
Answering about what side he’d take as a whole, the analyst said:
“If you look at the growth rate of Meta Platforms Inc (NASDAQ:META) over the past five years, they’ve grown their business by, let’s call it, 68%. Apple has grown by 42%. But Apple’s stock is up 195%, and Meta is up 160%. These are both class-act CEOs, no question about that.”
Meta Platforms Inc (NASDAQ:META) crushed past analyst estimates for its Q2 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)
