The ‘Magnificent Seven’ in the stock market, comprising Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla, have been the darlings of investors, especially with the advent of artificial intelligence (AI). This elite group has not just ridden the AI wave but has showcased innovation, profitability, and unwavering market dominance.
Despite their stellar performance in 2023, these giants have seen mixed results this year:
- Apple: down 11.4%
- Amazon: up 16.9%
- Alphabet: down 3.4%
- Meta Platforms: up 44.9%
- Nvidia: up 86.4%
- Microsoft: up 8.9%
- Tesla: down 27.5%
Among them, Meta Platforms has emerged as a standout performer, significantly outpacing the S&P 500 Index’s gain of 7.6%. Let’s delve into why Meta stands out and whether it is the prime ‘Magnificent Seven’ stock to consider investing in right now.
The Rise of Meta Platforms
In a market where trillion-dollar valuations were the ultimate achievement, Meta Platforms, formerly Facebook, joined the exclusive $1 trillion club last year, solidifying its status as a tech behemoth.
What started as a mere social media platform has evolved into a conglomerate, housing popular apps like Instagram, WhatsApp, Messenger, and the recent introduction of Threads. With over 3.1 billion users across its applications, Meta’s reach is unparalleled.
Statista ranks three of Meta’s platforms among the top five globally, with Facebook alone boasting $3.07 billion in monthly active users in 2023.
This massive user base translates into impressive financials, with Meta’s social media platforms contributing a staggering 97% of the total revenue, amounting to $39.0 billion in the latest quarter, showcasing a remarkable 97% year-over-year growth in operating income.
While the Reality Labs segment faced challenges, it bounced back in Q4 with a 47.1% revenue surge, fueled by robust sales of their Quest 3 mixed reality headset. Meta also reported a solid 16% revenue growth and a 73% increase in diluted earnings per share for the full year 2023.
The Potential of Meta Stock
Diversifying its product offerings, Meta introduced several AI-powered gadgets last year, such as the Ray-Ban Meta smart glasses and generative AI stickers, expanding its technological prowess.
Moreover, the company’s Reality Labs segment, though recovering, has immense growth opportunities in the burgeoning global metaverse market, projected to exceed $1.3 trillion by 2030.
Noteworthy developments on the business front include the robust growth of WhatsApp Business platform and Threads amassing around 130 million active users in 2023, further bolstering Meta Platform’s position as a powerhouse in the tech industry.
The Evolution of Meta Platforms Stock: An Investor’s Perspective
Social media being its dominant business, Meta largely depends on advertising for revenue. In 2023, Meta’s ad revenue stood at $131.9 billion, an increase from $113.4 billion in 2022. While the ad market struggled last year, experts anticipate it to recover this year, adding to Meta’s growth.
On the balance sheet, it finished the quarter with $65.4 billion in cash, cash equivalents, and marketable securities, as well as $18.4 billion in long-term debt.
Meta’s Strategic Financial Moves
Another positive development in Q4 is that Meta is now a dividend-paying stock. Thanks to its massive free cash flow balance of $11.5 billion, Meta announced its first quarterly dividend of $0.50 per share. With the increase in earnings and FCF, investors can expect dividend payments to continue on a quarterly basis. The company also announced a $50 billion increase to its share repurchase program.
Management anticipates Meta’s first quarter of 2024 revenue to land in the $34.5 billion to $37 billion range. Analysts’ estimates are in the same range.
Financial Projections and Market Comparisons
Looking ahead, analysts expect Meta’s revenue to increase by 17% year-over-year to $158.4 billion in 2024. Additionally, EPS is expected to grow by a massive 34.4% to $19.98. Furthermore, in 2025, revenue and earnings are expected to jump by 12.4% and 16%, respectively.
Meta’s stock is trading at about 21 times 2025 projected earnings, which seems reasonable for a stock with outstanding long-term AI opportunities. Meanwhile, its peers Amazon and Microsoft are trading at 32x and 30x forward earnings, respectively.
Analysts’ Insights on Meta Stock
Out of the 44 analysts covering Meta stock, 39 have a “strong buy” recommendation, one rates it a “moderate buy,” three suggest it’s a “hold,” and one suggests a “strong sell.” Meta is trading close to its average price target of $500.98. Its Street-high estimate of $575, however, implies a potential upside of about 12% in the next 12 months.
The Potential of Meta Platforms Stock
In the Magnificent 7 group, Nvidia, Alphabet, Microsoft, and Amazon are also expanding rapidly and experiencing explosive growth, thanks to AI. Given that, it is difficult to single out Meta Platforms as the crown jewel.
However, I believe the company is one of the most promising AI investments to make now. As Meta continues to explore its AI capabilities, along with untapped potential in some of its segments, it could see more growth than anticipated. All in all, Meta remains an excellent stock to buy and hold for the long haul.
