In a landscape dominated by the competition for artificial intelligence supremacy, Meta has taken a remarkable lead, showcasing a stellar stock performance that has caught the attention of investors globally. In what can only be described as a meteoric rise, the parent company of Facebook has celebrated a record 16 days of continuous stock gains. This impressive streak has propelled its market capitalization tantalizingly close to the $2 trillion mark for the first time in history.
Conrad van Tienhoven, portfolio manager at Riverpark Capital, has been vocal about the transformative potential of Meta in the AI domain. He suggests that Meta is on par with Nvidia when it comes to benefiting from AI advancements. Many are beginning to share this perception, as the wave of enthusiasm surrounding AI investments begins to ripple through Wall Street.
While competitors like Microsoft and Alphabet grapple with the delay in realizing significant returns on their hefty investments in AI, Meta has already begun to reap the rewards. The company’s allocation of resources towards enhancing its AI solutions has revolutionized its advertising capabilities, leading to faster growth rates and improved revenue per user.
According to data compiled by Bloomberg, this impressive stock surge marks the longest such streak among Nasdaq 100 components since 1990. During this period, Meta's share price has skyrocketed by over 17%, pushing its market value beyond $1.8 trillion. Despite this remarkable performance, Meta remains one of the more attractively priced stocks among the tech giants.
The catalysts for this string of success are noteworthy. Earlier this year, CEO Mark Zuckerberg revealed ambitious plans for Meta to invest up to $65 billion in AI projects by 2025—an initiative that significantly exceeded market expectations. Although the scrutiny surrounding capital expenditures has intensified, Meta’s commitment to its investment goals has reinforced its strong positioning in the tech realm.
Interestingly, while the tech industry faces disruption from emerging competitors like DeepSeek—an AI start-up claiming superior performance at lower costs—Meta's stock has continued to climb. Investors view DeepSeek's early successes as validation of open-source models, similar to the ones underlying Meta's Llama, a significant AI project.
Moreover, Meta's financial disclosures illustrate a trend where AI advancements are directly enhancing advertising targeting effectiveness, benefitting billions of users. Zuckerberg has boldly declared that 2025 will be a pivotal year for AI development at Meta. Recently, the company has begun notifying employees of layoffs to streamline its focus on attracting top AI talent.
Additionally, Zuckerberg’s strategic pivots have been aimed at aligning Meta more closely with government expectations in the United States. The rally in the stock price can be traced back to the inauguration of the current administration, suggesting a broader sentiment in favor of growth and innovation.
Such robust performance stands in stark contrast to Alphabet’s struggles. As another giant in the online advertising space, Alphabet's disappointing earnings report triggered a decline in its stock price this year, while Meta has surged by nearly 23% in the same timeframe.
Jim Polk from Homestead Advisers points out that “Meta is leading the charge in demonstrating how substantial capital outlays in AI are translating into practical outcomes,” highlighting why investors are favoring Meta over its rivals. In comparison, Alphabet still needs to establish the efficacy of its spending, especially when faced with the threat of losing market share in the search landscape.
Forecasts predict that Meta’s revenue could grow by almost 15% by 2025, with a gradual slowdown anticipated in subsequent years. However, net income is expected to accelerate from a modest growth of 6.2% this year to 15% by 2026.
This extraordinary run has also pushed Meta's 14-day relative strength index to about 80, well above the 70 threshold that typically signals overbought conditions. A slight dip in stock price was observed in premarket trading on Tuesday, hinting at market adjustments.
Yet, despite the impressive stock rally, Meta's valuation does not appear excessively inflated. Presently, the company's price-to-earnings ratio stands at 27, the highest level since 2020, but it aligns with the Nasdaq 100 index average. Notably, among the so-called "Seven Tech Titans," only Alphabet exhibits a lower P/E ratio.
Rhys Williams from Wayve Capital Management describes the current environment as “algorithm heaven,” noting that Meta is one of the few large-cap stocks that performed flawlessly last quarter. Stocks with solid fundamentals and reasonably attractive valuations have become favorites in quant models.
The recent ascent of Meta's stock starkly contrasts the turmoil the company faced just a few years ago, when plummeting stock prices followed a strategic shift towards the metaverse, compounded by Apple’s privacy policy changes that severely hampered Meta’s ad targeting capabilities. Additionally, user traction began to wane, particularly in the light of competition from platforms like TikTok.
Concerns that once loomed over Meta have faded considerably in light of its substantial investments in AI, which have effectively counteracted the adverse impacts of Apple’s policy adjustments. This newfound momentum has not only restored user engagement but has also reinstated the company's trajectory upward. Although TikTok still poses a formidable competitive threat, the platform's prospects in the U.S. remain uncertain, with a potential ban looming that could disrupt its operations significantly.
Polk speculates, “I doubt the market is currently pricing in that TikTok will face a ban in the U.S. But should that occur, it would create a substantial windfall for Meta.” The implication of such an event could further buoy Meta's stock, leading to even greater investment interest.