Time to look back on some of 2024’s Magnificent 7 stock gains.
Nvidia (NVDA) is up 170% this year, followed by Tesla’s (TSLA) 90% surge. Meta Platforms (META) ranks third, rallying 75%.
Unlike Nvidia and Tesla, which deliver physical products, Meta earns the bulk of its revenue by selling ads on its platforms, including Facebook, Instagram, and WhatsApp.
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Businesses pay Meta to display highly targeted ads to specific user groups based on their demographics, interests and online behavior.
This is the art of artificial-intelligence-driven advertising. Meta uses AI algorithms to improve ad relevance and performance, making its ads attractive.
“They have to infer your interest, which is substantially harder to do, and Meta does that very well,” Mark Douglas, chief executive of advertising software maker MNTN, told TheStreet.
AI will remain a key investment theme in 2025.
Meta expands AI role beyond ads
Meta’s AI capabilities extend far beyond just increasing ad sales.
The social media giant rolled out its AI Studio in July, enabling users to create AI characters that help people find interests, get information, and more. For example, an AI chef character can offer personalized tips for local dining.
Nvidia Chief Executive Jensen Huang spoke with Meta CEO Mark Zuckerberg in July and recognized Meta as a leader in AI.
“Every single restaurant, every single website will probably, in the future, have these AIs,” Huang commented on Meta’s AI initiative.
Related: Legendary billionaire tech investor makes an amazing claim about Nvidia’s stock
Meta just unveiled new features on its Ray-Ban smart glasses, including live AI and real-time translations.
The Ray-Ban smart glasses are part of Meta’s Reality Labs division. Meta sees it as a long-term opportunity to diversify revenue beyond its core ad business.
The smart-glasses business so far has been operating at a loss. For the third quarter Reality Labs reported a loss of $4.4 billion.
Meta has been spending billions to build out AI, including purchasing Nvidia’s GPUs to help improve its core ad business.
In October, Meta raised low end of its 2024 capital expenditure guidance, setting a range of $38 billion to $40 billion instead of the previous estimate of $37 billion to $40 billion.
Related: Meta earnings blast forecasts, but Facebook parent sees big capex increase
In Q3, Meta earned $6.03 a share, surpassing analysts’ estimate of $5.25, on revenue of $40.59 billion, exceeding expectations of $40.29 billion.
Ad revenue came in at $39.9 billion for Q3, up 18.7% from a year earlier. The segment accounted for 98% of Meta’s total Q3 revenue.
JP Morgan raises Meta Platforms stock price target for 2025
JPMorgan raised its price target on Meta Platforms to $725 from $660 with an overweight rating on the stock.
Meta is one of JP Morgan’s top stock picks for 2025, thefly.com reported on Dec. 18.
Despite continued the strong share performance and select higher valuations, JP Morgan remains positive on the social-media group into 2025, the analyst said.
In October, Meta warned of a “significant acceleration” in artificial-intelligence-related infrastructure expenses in 2025.
JP Morgan affirms that AI will remain a key investment theme but anticipates a shift in focus toward AI agents and applications.
Threads could surpass X in 2025, Evercore ISI said
Evercore ISI also raised its Meta Platforms’ stock price target to $700 from $675, maintaining an outperform rating. It cited strong growth of Threads, Meta’s microblogging competitor to X.
Zuckerberg recently said Threads had more than 100 million daily active users and more than 300 million monthly active users.
Evercore analyst Mark Mahaney expects Threads to surpass X in monthly users within three to six months. By the end of 2025, Thread is expected to exceed 500 million users.
Assuming an average of 600 million monthly users in 2027, Threads “could add almost $8 billion in revenue and $4 billion in operating income,” the analyst said.
Under a more robust scenario with 700 million monthly users by 2027, the platform’s revenue could climb to $13 billion, with $6.5 billion in operating income, he added.
The firm says Threads’ growth could make it a major contributor to Meta’s financial performance in the coming years.
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Truist analyst Youssef Squali increased Meta Platforms’ stock price target to $700 from $650 while reiterating a buy rating on the stock.
While the investment firm’s near-term estimates for Meta are unchanged, it extended its discounted cash flow model by another year.
The discounted cash flow model is used to estimate the intrinsic value of a company based on its expected future cash flows.
Truist’s adjustment reflects Meta’s higher growth prospects in the outer years as the company is expected to continue to grow faster for longer, Squali stated.
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