Meta Platforms Inc., with its aggressive move into artificial intelligence has captured Wall Street’s attention once more. Its stock is up by over 40% since its April lows.
Scale AI is the latest catalyst, with a $14.3billion investment. It’s a startup that labels data. The CEO of Scale AI will be joining Meta’s team to develop artificial general intelligence.
Scale AI’s deal was finalized just last week. Meta had raised its forecast capital expenditure for 2025 from $48 billion to $72 Billion. This figure reflects CEO Mark Zuckerberg’s relentless pursuit of AI dominance.
Analysts are bullish about the use of AI by the company to accelerate revenue growth and drive the market despite the size of the investment.
Analysts estimate that AI-generated tools can add up to 4-percent to Meta’s annual advertising revenue by the end of this decade.
Some also worry that the continued spending on AI will make a company more vulnerable, as it’s impact on earnings is still unclear.
AI optimism lifts the broader market outlook
Meta’s rise is part of an overall resurgence among AI stocks. This resurgence has gained momentum after the first quarter earnings eased fears that tech giants might cut back on AI infrastructure expenditure.
Global X Artificial Intelligence & Technology ETF has risen by 32% in the past eight weeks, far exceeding the S&P 500’s gain of 20% and the Nasdaq100’s rise of 27%.
This resurgence is attributed to geopolitical events, including the temporary suspension of US tariffs by Donald Trump. The announcement sparked a relief rally in equities.
The strategic pivot to AI from Metaverse yields positive results
Meta’s pivot to AI-driven automation and advertising from its metaverse project and rebranding has paid off.
Bloomberg reported that Allen Bond, portfolio management at Jensen Investment Management bought Meta stock for the first-time in recent weeks in part due to the aggressive AI spending by the company.
Bond stated in the report that “AI to optimize data on users to generate revenue is an obvious application. It allows Meta to be offensive while Alphabet plays defense.” He was referring to fears that Alphabet, the parent company of Google, could lose its market share to AI-based services such as ChatGPT.
While AI can be expensive, it has shown to pay off in the long run.
Meta’s first-quarter 2025 report showed a 31% record return on capital invested — more than twice the level seen in 2023, when the high expenditure on Metaverse projects lowered margins.
AI is now used extensively by the company to boost engagement on platforms such as Instagram and WhatsApp and automate ads.
How long can stock performance continue to outperform peers?
META has seen impressive gains over the last two years. The stock is expected to rise 194% by 2023, and 66% more in 2024.
The performance is a drastic turnaround from 2022, when the plunge was 64%.
But questions still remain regarding the long-term sustainability of this progress.
Greg Halter said, “This is still a buy, as you are getting a very strong return for an affordable price.”
It’s not the same as it used to be.
The stock has been trading near the consensus target price.
META is fully priced in terms of valuation
Forbes, citing Trefis insights, states that Meta is fully valued from an evaluation standpoint.
The shares trade for 24.5 times the estimated earnings. This is cheaper than most other megacaps but above their own average of 22 times over the last decade.
The current price-to-sales ratio (P/S), which is 6.8 times the average over four years, has risen to 10.6.
Trefis values Meta’s shares at $702 each. The current price of Meta’s shares is $682.87.
Trefis also says that the impact AI will have on earnings in the future is still unclear. This makes Trefis’ continued spending heavily in AI a vulnerability.
Meta, which has committed to $77 billion of capital spending since 2023, plans to spend another $64 to $72 Billion this year. This money will be used to build AI infrastructure.
The stock price has risen in response to Meta’s AI-driven push: Is there still room for further gains or have the prices already been set? This post may be updated as new updates occur.
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