Yahoo Finance Does META's Expanding AI Prowess Make the Stock Worth Buying?
Meta Platforms META has been leveraging AI and machine learning to boost the potency of its social-media offerings, including WhatsApp, Instagram, Facebook and Threads.
The rapid adoption of Generative AI (GenAI) is transforming conversational messaging platforms like WhatsApp to perform conversational commerce, including transactions like ride-hailing and grocery purchases.
META Integrates AI Tools Into WhatsApp Business
META is now incorporating AI tools into WhatsApp to make businesses more customer-oriented.
The AI tools will enable businesses to help customers in finding new products. META is training AI to help businesses quickly answer the most popular questions they receive from customers on WhatsApp. AI integration will help businesses create ads on Facebook and Instagram.
Meta Platforms, Inc. Stock Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
Moreover, Meta Platforms is leveraging AI to boost Facebook’s appeal among young adults, a demographic that prefers Alphabet’s GOOGL YouTube and Snap’s SNAP Snapchat.
Per Statista, Snapchat, TikTok and Instagram have been the most used social media for 18-29 users. According to a Pew Research 2023 study, YouTube was the most used social media among U.S. teenagers, followed by TikTok, Snapchat and Instagram.
However, Meta Platforms shares have returned 39.5% year to date, outperforming both Alphabet and Snap. While Alphabet has returned 26.5% over the same timeframe, Snap has lost 10.2%.
AI Capabilities Lift META’s Prospects
Powered by cutting-edge AI, META is offering user-centric features, positioning Facebook as a platform that resonates with young adults. It has upgraded Reels and Feed ranking technologies, resulting in better content recommendations. A newly developed model architecture allows for efficient learning from large datasets, significantly improving the performance of Facebook Reels.
META is advancing its GenAI capabilities with Meta Llama, providing Facebook users with more interactive and personalized experiences. Currently, 30% of the posts on Facebook feed are delivered by Meta Platforms’ AI recommendation system.
Meta Platforms is currently developing several AI services, including its AI assistant, Meta AI, creator AI and business AI, as well as internal coding and development AIs. Meta AI is currently powered by its latest model, Llama 3.
Its AI-powered ad tools — Advantage+ Shopping and Advantage+ App Campaigns — have also reported robust revenue performance.
Key Headwinds for Meta: Higher Spending, Regulatory Troubles
Meta Platforms now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern.
Growing regulatory concerns don’t bode well for META’s prospects. It is suffering from privacy regulations in Europe and the United States and is also expected to face antitrust issues in its usage of AI.
META recently changed its European privacy policy to let it use people’s public personal posts and media, and data from other online sources, for an unspecified “AI technology” that can share data with third parties. However, it has been alleged that this policy is violating Europe’s General Data Protection Regulation.
Conclusion
Meta Platforms AI focus bodes well for its long-term prospects. However, higher investments in AI infrastructure development are expected to keep top-line growth and margins under pressure in the near term.
Full-year 2024 total expenses are now expected between $96 and $99 billion, up from its prior outlook of $94-$99 billion due to higher infrastructure and legal costs.
Capital expenditures will be in the range of $35-$40 billion, up from the prior range of $30-$37 billion for 2024. Meta Platforms expect capex will continue to increase in 2025 driven by ambitious AI research and product development efforts.
The Zacks Consensus Estimate for 2024 revenues is currently pegged at $158.97 billion, indicating 17.84% growth over 2023. The consensus mark for earnings is pegged at $20.16 per share, suggesting 35.57% year-over-year growth.
Moreover, META is trading at a premium with a forward 12-month P/E of 7.46X compared with the Zacks Internet Software industry’s 2.59X and higher than the median of 5.89X, reflecting a stretched valuation.
Hence, investors should wait for a better entry point for Meta Platforms, which currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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