Since the darkest day of 2022,$Meta Platforms (META.US)$Driven by the artificial intelligence (AI) boom, a record-breaking rebound increased its market value by $1 trillion, but the company's stock price is still discounted from some perspectives. The stock's expected price-earnings ratio on Wednesday was about 24 times, roughly the same as the 10-year average, and slightly lower than$NASDAQ 100 Index (.NDX.US)$25x price-earnings ratio. Of the “Magnificent Seven” big tech companies, only Google's parent company$Alphabet-A (GOOGL.US)$The price-earnings ratio is even lower, about 21 times.
Artificial intelligence is the biggest driver of the stock's rise, and it is also the biggest driver investors think the stock will have in the future. Meta has been investing heavily in artificial intelligence to improve ad targeting and recommend content to its huge user base, and investors believe this bet will pay off hugely. In the social media giant's recent quarterly report, profits tripled while revenue jumped substantially. Due to strong earnings, Meta also announced a $50 billion buyback program and paid out dividends.
Conrad van Tienhoven, portfolio manager at Riverpark Capital, said: “In terms of impact on growth, apart from$NVIDIA (NVDA.US)$or$Dell Technologies (DELL.US)$Other than chip or hardware companies, no company benefits more from artificial intelligence than Meta. Meta's ability to target and measure ads through artificial intelligence has clearly changed, laying the foundation for the company's growth over the next 5 to 7 years.”
Meta's stock price has soared more than 450% from its low almost 18 months ago, with an increase of about 46% since this year, second only to chipmaker Nvidia among the Big Seven.
The sell-off before this round erased more than three-quarters of Meta's valuation, and the market capitalization also experienced a historic sharp decline, mainly due to concerns about Meta's planned spending. While the company continues to invest in the virtual reality world, it is also focusing on cutting costs, calling 2023 the “Year of Efficiency.”
Rick Bensignor, CEO of Bensignor Investment Strategies and a former strategist at Morgan Stanley, said: “Meta has found a way to get rid of unnecessary spending, which is a real balance sheet plus, and it continues to innovate. If you're late, there's always a risk of a pullback when buying at such a high price, but I don't see any reason to quit. When I look at the level Meta is likely to reach in the next 5 or 10 years, it still looks like a very good core holding and is currently trading at a very favorable price.”
Of course, investors seeking an advertising industry can also snap up Alphabet. The company's valuation is low, with a rise of around 12% this year, which is much more moderate than Meta's increase. The data shows that although Wall Street is optimistic about these two companies, the average price target indicates that analysts believe Alphabet has slightly more room to rise from current levels.
However, investors are still skeptical about Alphabet's artificial intelligence products and their ability to turn them into growth. Meta's revenue growth is expected to be even greater this year, reaching 17%, while Alphabet's revenue growth is expected to be 12%. Meta's net profit growth is expected to roughly double this figure.
In an April 3 report, Royal Bank of Canada Capital Markets quoted its analysis of digital advertising industry spending as saying that Meta's performance was “clearly superior” to Alphabet, its biggest competitor in the digital advertising market. The Royal Bank of Canada raised Meta's price target from $565 to $600, saying that its superior performance over Alphabet would lead to a higher price-earnings ratio.
Meta is scheduled to announce first-quarter results after the stock market closes on April 24. Investors are most concerned about growing ad revenue, how AI solutions work, and how the company is monetizing products like Reels.
Meta's dominance was also highlighted by the struggles of its social media peers.$Pinterest (PINS.US)$und$Snap Inc (SNAP.US)$Previously, it was announced that sales were weak. Since this year, stock price returns have all been negative, while the newly listed ones$Reddit (RDDT.US)$It also failed to excite analysts.
Under Meta's shadow, Bernstein analyst Mark Shmulik wrote, mid-sized social platforms may be “structurally disadvantaged and too small to compete”. He wrote, “What are the hopes for small social gaming companies, including Reddit, to reach levels of user stickiness, monetization, and profitability like Meta?” The analyst also gave Reddit an “outperforming market” rating for the first time.
Editor/Jeffrey