3. 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.”
