2. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 235
Morgan Stanley recently named its top picks for the advertising sector and released a similar list for media and entertainment stocks heading into 2025.
Morgan Stanley projects U.S. advertising to grow around 6.1% in 2025, following a challenging comparison to 2024, which includes the U.S. presidential election and Summer Olympics.
Despite this tough comparison, the firm expects strong growth in U.S. ad spending, driven by performance-oriented spending at the bottom of the funnel. Meta Platforms Inc (NASDAQ:META) is one of the top picks of the firm in this category:
“Meta Platforms Inc (NASDAQ:META) is well positioned given its long pipeline of GPU-enabled products, including improvements in AI-driven feed and video recommendations, new ranking model architecture capable of learning more effectively from larger data sets, and incremental diffusion model capabilities.”
Meta Platforms (NASDAQ:META) is driving usage and ads revenue by improving its algorithms and user experience thanks to AI. Meta also reported strong adoption of its Llama AI model, attracting over 500 million monthly active users across its platforms. This progress positions Meta well for robust profitability in the next two years as it scales its AI infrastructure.
Meta Platforms (NASDAQ:META)’s advancements in Reels and WhatsApp are helping manage CapEx growth as the company strives to stay competitive in AI.
Meta Platforms (NASDAQ:META)’s clear monetization strategy for its generative AI, especially with Llama3, makes it a strong contender against rivals like OpenAI’s ChatGPT. Meta Platforms (NASDAQ:META)’s substantial user base of 3.3 billion provides a data and distribution edge that could capture a significant share of the GenAI market. Although short-term investors may be concerned about Meta Platforms (NASDAQ:META)’s increased AI spending, its forward P/E ratio of 24x, based on FY 2025 EPS estimates of $24.62, makes it the second-most affordable big tech stock, after Google, within its peer group (Apple, Amazon, Microsoft, and Google).
RiverPark Large Growth Fund stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q3 2024 investor letter:
“Meta Platforms, Inc. (NASDAQ:META): Meta was our best performer in the third quarter after reporting a strong second quarter, including revenue of $39 billion (+22% y/y) and EPS of $5.16 (+73% y/y), both ahead of consensus expectations. Better than expected advertising revenue was driven by strength in key verticals including E-Commerce, Gaming and Entertainment, and Media. The company gave revenue guidance for Q3 that was ahead of investor expectations, driven by continued growth from Reels and Messaging (WhatsApp US users reached 100m+).
META owns multiple social media platforms, each with more than one billion users, has an 81% gross margin, and generated $44 billion of FCF in 2023. Both its Facebook and its Instagram franchises have more than 2 billion Daily Active Users and generate the bulk of the company’s revenue. Recently, the company’s short form video offering, Reels, and public text-sharing app, Threads, achieved mass user engagement and growing advertiser adoption, which have helped return the company to strong revenue and free cash flow growth. Even after this year’s 62% stock price appreciation, META shares trade at 23.5x Wall Street’s consensus estimates for 2025 EPS, estimates that we think could prove to be too low.”
