Source: Zhitong Finance
$Meta Platforms (META.US)$It released lower-than-expected earnings guidance for the next quarter and said that with the start of the AI competition, the company will enter the investment cycle for a period of time, which has had a huge impact on investors who want the company to send a positive signal.
Under the impact of these shocks, the stock price plummeted by more than 15%. Wall Street analysts, however, defended the company.
James Lee, an analyst at Mizuho Securities, said Meta's long-term fundamentals were “unchanged,” and he maintained the stock's “buy” rating and target price of $575. He pointed out that the investment cycle was surprising, but unlike the previous cycle, revenue growth was not eroded, and the company recorded a faster profit growth rate than expected. Zuckerberg also mentioned this during the earnings conference call.
Zuckerberg said, “Historically, investing in building these new scale experiences in our apps has been a very good long-term investment for us, as well as for investors who insist on supporting us, and the initial signs are quite positive. But building leading-edge artificial intelligence will also be a bigger task than any other experience we've added to the app, which could take years.”
Meta said it is currently expected to spend between $94 billion and $99 billion for the full year due to “higher infrastructure and legal costs.” “As we continue to accelerate infrastructure investments to support our AI blueprint,” capital expenditure for the full year is expected to be between $35 billion and $40 billion, up from the previous $30 billion to $37 billion.
Wall Street stepped up to back Meta's AI investment
Other Wall Street investment banks, including Bank of America, have expressed similar thoughts. Bank of America said the stock's momentum cycle “may be over,” but the company is investing in the “right place.”
Analyst Justin Post said, “What's different about this investment cycle is that AI investments are already driving business results. Wall Street is positive about AI opportunities, but the CEO's change in tone is worth noting.” Post reiterated his “buy” rating for the stock and a target price of $550.
Post raised the company's 2024 capital expenditure forecast by $1 billion in light of increased plans, but he said any disruption to advertisers on TikTok due to potential divestments or bans could lead to an “upward” forecast.
JMP Securities analyst Andrew Boone also said that Meta is likely to be “in an advantageous position” to benefit from AI's increasing engagement and advertising efficiency. However, he acknowledged that it was difficult to buy the stock in the early stages of the investment cycle and lowered the target price from $550 to $525, although he reiterated its “outperforming the market” rating.
Royal Bank of Canada capital analyst Brad Erickson also adjusted his price target, lowering it from $600 to $570, but like others, he said he would buy the stock because artificial intelligence would only expand the company's moat relative to peers and help improve engagement and advertising efficiency.
Jefferies analyst Brent Thill also lowered the target price from $585 to $540, but said he believes the company has a successful record of producing “meaningful” returns over the past investment cycle. As a result, he maintained a “buy” rating on the stock.
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