Thursday, 6 June 2024

Why Meta Platforms Stock Rallied on Wednesday Morning

by BD Banks

Shares of Meta Platforms (NASDAQ: META) popped on Wednesday, gaining as much as 3.1%. As of 11:34 a.m. ET, the stock was still up 2.4%.

The catalyst that sent the social media and artificial intelligence (AI) specialist higher was a vote of confidence from a Wall Street analyst.

Growing AI opportunity

Raymond James analyst Josh Beck maintained his strong buy rating on the stock while increasing his price target to $550, up from its previous level of $525. That suggests potential upside of roughly 15% compared to the stock’s closing price on Tuesday.

The analyst is particularly bullish on Meta’s moves in generative AI, calling the company a “top pick” thanks to the list of AI “building blocks” it’s assembling. This includes its growing roster of employees with AI credentials and Meta’s robust computing infrastructure. These underpin the impressive performance of LLaMA (Large Language Model Meta AI) 3, the large language model that powers Meta AI, “one of the world’s leading AI assistants,” according to the company. The analyst is also impressed by Meta’s ability to build multiple new AI models “simultaneously” without any risk to its core social media business.

The analyst is clearly on to something. In April, Meta unveiled two distinct versions of LLaMA 3 — the 8 billion parameter model and the 70 billion parameter model. Parameters indicate the size of each model and the number of variables used to create it.

Meta’s social media platforms represent a treasure trove of information upon which to build its AI models, while also providing data for the targeted advertising that makes up the bulk of its revenue. The advent of generative AI represents a compelling opportunity for Meta to expand its revenue base, as the company charges the major cloud infrastructure services to make the LLaMA models available to their customers.

Just the beginning

Meta is still exploring other ways to leverage its AI expertise and profit from the AI revolution. At the same time, the company is poised to benefit from the ongoing recovery in the digital advertising market.

Finally, at just 27 times earnings, Meta is a bargain, particularly when viewed in the context of its vast opportunity.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.