Why Meta Platform Stocks Have Hit an All-Time High and Could Be Headed Higher

The S&P 500 it just hit an all-time high, but only one “Magnificent Seven” stock is up there with it.

That’s it Meta platforms (META -0.09%)which went from a disaster just two years ago with a falling share price to a company leading the artificial intelligence (AI) transition and delivering successful results in its core advertising business. Investors took notice, and the stock is up more than 500% from its crash nearly two years ago to today.

Let’s look at the factors driving the stock higher and why the Meta could still gain from here.

Image source: Getty Images.

Catching the AI

Nvidia dominates the AI ​​hardware market, but there’s more to it than chips. There has to be a product built on that hardware, of course, and perhaps no company has built a more compelling ecosystem than Meta Platforms.

At the Meta Connect conference this week, CEO Mark Zuckerberg announced that Meta AI has nearly 500 million monthly active users and is on track to become the world’s most used AI assistant, beating out competitors like ChatGPT. Microsoft The co-pilot, and AlphabetGoogle his Gemini.

Nearly half the world uses one of Meta’s platforms on a daily basis — including Facebook, Messenger, Instagram and WhatsApp — giving the company a built-in advantage over competitors and an easy way to introduce new technologies to its users.

With its own large tongue model, the Llama, the company’s vertical integration is hard to match.

Meta has just released a number of new features, allowing users to talk to Meta AI, share photos with it, and provide customizable AI that businesses can use for customer service and other forms of support.

More than a million advertisers also use its generative AI tools to create ads as well, showing just how broad the reach of its technology is. Those ads even outperformed those that didn’t use AI.

The core business is on fire

Meta’s advertising business collapsed during the industry downturn in 2022 as businesses braced for a recession that never happened.

But the ad business has since rebounded thanks to the company’s execution in new products like Reels, the proliferation of AI and commerce tools, and a user base that continues to grow.

In fact, Meta outperforms other major ad platforms. In the second quarter, its advertising revenue rose 22% to $38.3 billion. By comparison, Alphabet reported growth of just 14% on Google Search and 13% on YouTube, while its Google Network business, which serves ads on third-party sites, declined.

Amazonwhich has long surpassed Alphabet and Meta, reported 20% growth in the second quarter to $12.8 billion, and outperformed smaller social platforms such as Pinterest and Snap.

Why the stock could move even higher

Arguably, meta stock is getting expensive at a price-to-earnings ratio of 29, but the company has consistently beaten earnings estimates in recent quarters and has some leverage it can pull to fuel its growth from here.

The company continues to spend aggressively on the Reality Labs segment, putting billions of dollars a year into the engine behind AI and projects like the metaverse. There is room to rein in some of that spending if investors demand it, as the company demonstrated in its “year of efficiency.”

Meta continues to make strides in hardware with its Quest virtual reality devices, a collaboration with Ray-Ban to make smart glasses, and the Orion augmented reality (AR) glasses it just unveiled, though the company says the latter are likely years away . far from being available to customers.

Meta believes the Orion is the most advanced pair of AR glasses ever made, and promises that the billions it has invested in research and development will continue to produce new devices like the Orion.

Investors might think of these new devices as moonshots, but only one of them needs to hit to pay for the Meta. And its current valuation doesn’t seem to reflect the potential of its devices, but they could be a significant part of the business in five to 10 years.

Meanwhile, management is executing effectively in advertising, and the company seems well-positioned to remain a leader in AI. Meta Platforms is undoubtedly headed for further growth, and as it delivers, the stock will rise.