Meta, the parent company of Facebook, recorded the top performance in its shares this year, significantly standing out from other companies.
It has achieved exceptional revenue growth while being more affordable than smaller companies like Snap Inc. and Pinterest Inc.
See more: Meta: Wants to label all AI images on Facebook and Instagram
To maintain the upward trend that has added almost $350 billion to its market value, Meta must prove that it is capable of continuing this growth during its earnings announcement on Wednesday. A key point of interest for investors will be the examination of the performance of their investments in the significant spending on artificial intelligence.
“The outlook remains positive for initiatives around artificial intelligence and efforts to improve targeting and engagement,” said Hanna Howard, portfolio manager at Gabelli Funds. “There is significant room for growth and margin improvement . Current pricing, at these levels, offers an attractive investment option.”
In February, Meta reported impressive gains in fourth-quarter earnings and revenue, revealing the positive impact of cost-cutting initiatives that included the elimination of thousands of jobs. It also announced an extensive $50 billion share buyback program and the implementation of a dividend. In contrast, companies like Snap and Pinterest have posted disappointing growth performances.
The creation of high expectations poses a significant challenge, as it may prove difficult to exceed them. This period, it is expected that Meta's earnings will record an almost doubling in the first quarter, with revenues showing a 26% increase. However, both are expected to show a decline during the year, according to Bloomberg analyses.
Investors will be looking for updates on the progress of the artificial intelligence that Meta uses for its sophisticated ad targeting. Recently, the company unveiled a new version of its artificial intelligence model, intended to drive the app's built-in AI assistant.
“Meta has transformed from a simple social network into a complex artificial intelligence platform, reaping significant benefits from this evolution», noted Jay Woods, Global Strategy Head of Freedom Capital Markets. «Although it faced some challenges and increasing pains over time, it now operates with greater efficiency..”
With its valuation significantly outperforming Snap, Pinterest and Reddit this year, Meta continues to hold the top spot in the market. Its stock trades at less than 23 times its estimated earnings, offering a significant discount to both its 10-year average and the broader Nasdaq 100 index, making it a highly attractive pick among social media peers.
As Meta faces criticism over its policies on teens and children on social media platforms, it has an opportunity to benefit from proposed legislative restrictions on social media platforms. The US government is considering shutting down TikTok, one of Meta’s major competitors, through a bill being pushed through the Senate. At the same time, X’s daily user count is declining, and Fidelity downgraded its investment in the company formerly known as Twitter.
«The prospects of Meta in the market sector appear encouraging, as are the prospects in the artificial intelligence sector, at a time when its competitors are either achieving significant successes or facing significant failures. And in the case of failure, the market is relentless», said David Katz, head of investments at Matrix Asset Advisors. «We are clearly less optimistic about the smaller “players” in the social networking sector, who seem to be facing greater difficulties».
Read also: Meta and Instagram down again for some users
Tesla Inc. saw shares rebound after Elon Musk pledged to offer more affordable vehicles by the end of the year, reassuring investors about recent concerns about disappointing earnings results and a diminished growth outlook. Holding on to an 11% gain in trading, Tesla is on track for its biggest gain since January 2023.
Source: bnnbloomberg
