Meta has emerged from the recent turmoil as a true market leader

When uncertainty hits the markets, investors should always consider names that offer relative strength. In recent weeks, Meta platforms (NASDAQ:THE TARGET) was the market leader and was one of the first names to bounce back from last Monday’s sharp crash. As of the market close on August 13th, Meta shares are currently trading at $528.54 and have gained more than 52% so far in 2024. While it has had a great year to date, here’s why I think Meta will continue to lead the markets at the end of the year.

Meta outperformed its Mag 7 peers during the recent downturn

They say this is a technology driven market. The largest allocations in both the NASDAQ and the S&P 500 belong to mega-cap technology names. Over the past month, Meta has outperformed them all and is the only stock to post a positive monthly gain. The meta recently hit a low of $450 in late July, but has rallied more at a time when other names such as NVIDIA (NASDAQ:NVDA) and Amazon (NASDAQ:AMZN) showed considerable weakness.

Meta continues to offer investors the best of both worlds. Not only does it establish itself as a leader in generative AI technology, but it also has a family of social media apps, including WhatsApp, Instagram and Facebook. Together, these apps have more than 3.2 billion daily active users (DAUs), as reported in the most recent quarter.

Meta uses AI to strengthen its existing products

When I first initiated my coverage of Meta stock, I wrote about how I was bullish on the company’s investment in AI. We talked about how the company will improve its advertising segment by integrating AI to learn user preferences and behaviors. On the most recent earnings call, CEO Mark Zuckerberg admitted that all the capital expenditures being invested in AI won’t pay for themselves for years. Combined with a Goldman Sachs report that questioned the long-term returns of generative AI for big tech companies, it’s easy to see why the sector has seen weakness this summer.

Despite these headwinds, Meta continues to outperform its peers during both market downturns and upswings. Meta implements the “free now, monetize later” philosophy for its open-source Llama 3 generative AI platform. I think Meta is waiting to integrate its AI technology naturally into its own ecosystem. The path to monetization for AI will be clearer in the future, but I have my faith in a management team that followed a similar path for both Instagram and WhatsApp.

Meta is expanding its product line with smart glasses

Last year, Meta launched Meta Smart Glasses in partnership with Ray-Ban. Given the success of its initial foray into eyewear, it came as no surprise when Meta announced it was interested in taking a minority stake in Ray-Ban in July. The deal would see Meta take a 5% stake in Ray-Ban’s parent company EssilorLuxottica (OTCMKTS:ESLOY). The third generation of Meta smart glasses is expected to be released next year with a built-in screen display.

Meta’s Smart Glasses are just the tip of the iceberg when it comes to extending them into eyewear. The deal with EssilorLuxottica gives it access to more than 45 different eyewear brands, incl Bruno Cucinelli, Chanel, Oakley and Oliver Peoples.

The meta still has a cheap valuation and that’s why I’m still buying

Despite its strong performance of late, Meta shares trade at just 25.4x forward earnings and 9.1x sales. Even after all the growth since it bottomed in 2022, Meta’s valuation is the same as in 2021. Over the past three quarters, Meta has beaten earnings estimates by an average of 9.6%, showing consistent and above-average growth .

Given that its earnings multiple continues to be lower than almost every Mag 7 peer, I expect further upside for Meta stock for the rest of this year. Meta has an analyst price target of $591.61, which doesn’t seem to be enough if this market rally continues into Q4 2024.

Meta stock is an AI game with the security of its profitable advertising segment. Throw in the expansion into smart glasses and my belief in Meta stock only grows stronger. I have no problem issuing a Buy rating on the stock and strongly believe that any further declines present buying opportunities for long-term investors.

At the time of publication, Michael Que held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

At the time of publication, the responsible editor had (neither directly nor
indirectly) any positions in the securities mentioned in this article.