Why META Stock Is A Prime Choice In The AI Boom
CANADA - 2025/05/18: In this photo illustration, the Meta AI logo is seen displayed on a smartphone ... More screen. (Photo Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images)
Question: Why pay a premium of 35 times earnings for Microsoft stock when Meta stock is available at 25 times earnings? This seems particularly questionable when considering the following three key factors:
Meta isn't exactly a safe haven investment. To illustrate this, consider how Meta's stock has reacted during past market shocks: it experienced a significant 77% decline during the 2022 inflation shock, compared to a peak-to-trough drop of only 25% for the S&P 500.
Similarly, during the COVID-19 pandemic in 2020, Meta's stock fell by 35%, while the S&P 500 saw a comparable decline of 34%. These instances suggest that Meta is not a particularly "safe" stock. Also, see Buy or Sell Meta Stock.
Furthermore, it has already seen substantial gains this year, rising 7%, and a remarkable 32% in just one month, climbing from around $485 on April 21st to $640 currently. On the other hand, for a more balanced perspective, consider the Trefis High Quality strategy, which has outperformed the market with over 91% returns since its inception, as demonstrated by its performance metrics.
Confident in the long-term potential of the AI revolution? Meta Platforms presents a compelling investment opportunity due to its unique position. Unlike companies solely focused on AI development, Meta integrates AI across its massive and growing user base. The daily active people (DAP) across Meta's family of apps have grown by an impressive 16%, from 2.95 billion in 2022 to 3.43 billion currently. This vast engagement provides a distinct advantage in monetizing AI advancements through enhanced advertising, content recommendations, and overall user experience.
A substantial portion of the company's revenue is directly generated from ad sales on its key platforms: Facebook, Instagram, Threads, and WhatsApp, making AI-driven improvements in ad targeting and delivery particularly impactful. Supported by significant investments in AI research and development, and leveraging this unparalleled global social media network, Meta is strategically positioned to capitalize on AI growth, regardless of the dominant technologies that emerge.
Despite its compelling advantages, investing in Meta is not without risks. A key concern is the potential for earnings to fall short of expectations or for sales growth to decelerate from 22% in the past year to a possible 15% in the near future. This slowdown could be driven by broader economic headwinds, where businesses might reduce advertising expenditures to preserve capital, particularly in the event of slowing economic growth or a recession.
Furthermore, unforeseen or unexpected shocks could negatively impact the stock's performance. Consequently, investors should be prepared for the possibility of significant declines, potentially reaching 50% or more. Selling during such downturns could be detrimental to long-term returns. Instead of reacting impulsively, consider consulting a financial advisor with experience navigating multiple bear markets. They can provide insights into strategies like the Trefis HQ strategy and other prudent approaches to potentially capitalize on market downturns. Remember, substantial wealth can be generated in such environments by maintaining a rational perspective.
Considering these factors, if you are a long-term investor with a 3-to-5-year horizon and a buy-and-hold strategy, Meta could present an interesting entry point at its current valuation, even after its recent price increase.
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