Energy Deal Creates Technical Bullish Signal for Meta Platforms Stock (META)

Business Insider

a day ago

From a fundamental perspective, social media and technology juggernaut Meta Platforms (META) recently made a compelling case for long-term investment. Meta recently entered into a 20-year power purchase agreement with Constellation Energy's (CEG) Clinton nuclear plant in Illinois. Primarily, the deal will help Meta manage its energy costs, a core component of its forward growth strategies.
Confident Investing Starts Here:
Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions
Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter
Indeed, artificial intelligence has emerged as one of the top priorities in the tech ecosystem. However, generative AI comes at a significant cost: substantial power consumption. In 2023, the power required to support AI deployment was estimated at 1 gigawatt. Experts believe that this rate will increase sevenfold to tenfold in the next two years, thus underscoring the criticality of Meta's energy deal. I too am bullish on META, but for different reasons.
Market narratives aren't always reliable indicators of future valuations. Even as sentiment around Meta remains largely optimistic, analysts are actively revising their forecasts. While the majority maintain a bullish stance, the consensus price target suggests a degree of caution.
For traders focused on near-term gains, compelling narratives alone don't offer enough concrete data for decision-making. In these cases, speculators often rely more on empirical, quantitative indicators to inform their strategies.
Market Analysis and the Non-Stationarity Problem
When investors turn to financial publications, they're not simply looking for recycled narratives—they're in search of opportunities, specifically cases where the market may have mispriced certain stocks. To uncover these discrepancies, investors often turn to fundamental and technical analysis.
While these methods can provide helpful context and short-term guidance—helping frame potential entry and exit points—they fall short of offering true empirical precision. The core issue lies in the problem of non-stationarity: over time, the metrics and benchmarks used for analysis can shift significantly due to changing market conditions and sentiment cycles, undermining their long-term reliability.
For example, META stock recently closed near the $700 level. Five years ago, the equity could be bought for around $230. And a decade ago, META was priced at around $117. Attempting to conduct meaningful statistical analyses, such as price clustering, would be impossible given the significant disparity in share prices.
Similarly, it's challenging to make valuation assessments on META stock. One could note that the equity trades at over 27x earnings. However, there's no first-order principle that this metric means anything. Furthermore, a range of catalysts — including business expansion, industry transitions, share dilution, and buybacks — can alter this ratio.
Subsequently, comparisons across time aren't meaningful due to the shifting framework. To conduct an empirically sensible analysis, one must impose stationarity on the dataset, and that's where market breadth comes into play.
Delivering an Apples-to-Apples Comparison for META Stock
At its core, market breadth is the pattern of accumulation and distribution. Another way of looking at market breadth is that it represents demand, and demand is a binary concept — it's either happening or it's not. Plus, from a statistical standpoint, demand is a discrete event that is easily categorizable and quantifiable across time.
Stated differently, a market breadth profile that occurred several years ago remains relevant to the same profile that is currently in effect. That's the benefit of compressing — or abstracting to use the proper lexicon — price discovery into a binary code: analysts can develop probability matrices, focusing on how one demand profile (or behavioral state) transitions to another.
With META stock, in the past two months, the security printed a '7-3-U' sequence: seven up weeks, three down weeks, with a net positive trajectory across the 10-week period. Notably, in 58.25% of cases, the following week's price action results in upside, with a median return of 2.59%.
If the implications of the 7-3-U sequence materialize as projected, META stock could potentially reach $715.78 in short order, possibly within a month. Should the bulls maintain control of the market, the optimists could attempt to drive the share price to $723 over the next three weeks.
Primarily, the setup incentivizes a bullish posture because of the baseline probability. On any given week, the chance that META stock will rise is 55.51%, which is a decent upward bias. However, the 7-3-U sequence adds a couple of percentage points to the odds in favor of the bullish speculator.
Setting Up an Aggressively Rational Options Strategy
In the open market, a 3% gain or so isn't really going to move the needle. However, with the leverage of multi-leg options strategies, relatively incremental gains can turn into significant payouts. For those who want to take a more aggressive approach while staying within the realm of rationality, the 710/715 bull call spread, expiring June 27, is offering value.
This transaction involves buying the $710 call and simultaneously selling the $715 call, for a net debit paid of $210. Should META stock rise through the short strike price at expiration, the maximum reward is $290, which translates to a payout of over 138%.
What makes this trade so enticing? As specified earlier, the statistical response to the 7-3-U is generally to the upside. Should META stock rise, the median return is 2.59%. Of course, the actual result could be higher or lower. If the median performance materializes, META could soon be priced near $716. Therefore, a $710 price target provides a certain level of 'safety' margin. Notably, the market makers are offering a 138% payout, which suggests that they don't expect META stock to rise significantly from here. Most likely, they believe that the good news is priced in.
What is the Price Target for META in 2025?
Among professional market analysts, META stock carries a Strong Buy consensus rating based on 42 Buys, three Holds, and one Sell rating. The average META stock price target is $698.07, implying a marginal upside potential of less than 1% over the coming 12 months.
Statistical Approach to META via Stock Options
If you're looking to invest in Meta Platforms, the company's recent energy deal offers a strong long-term narrative. However, if your goal is to trade META stock for shorter-term gains, you'll need more actionable, data-driven insights. In that case, statistical analysis may be a better approach, providing the required empirical rigor to identify high-probability opportunities.