Meta Platforms (NASDAQ:META) is a mega-cap tech giant most investors really don’t need an introduction to. The parent company of Facebook, Instagram, WhatsApp, and Messenger currently engages more than 3.3 billion eyeballs daily across its platforms, and is one of the leading social media and advertising giants worth considering on the basis of its core business. The second-largest ad-tech company in the world, with nearly 22% market share in digital advertising spending, Meta has built an absolute behemoth of a cash flow machine it continues to use to invest in other high-growth technologies and provide market-beating growth.
Much of the reason for Meta’s impressive 65% year-to-date surge has been its key investments in artificial intelligence to boost its efficiency and engagement with users. More than 1 million advertisers used Meta’s AI tools last month, boosting conversions by 7% according to the company’s CEO Mark Zuckerberg. Given these impressive statistics, and the strong early adoption of these tools by its customer base, it’s becoming clear to many investors that Meta is a company that’s a need-to-own right now. And with the adtech market projected to grow at a 22% compounded annual clip through 2030, Meta is well-positioned for high-teens revenue growth over this time frame, which should boost its valuation considerably.
With these factors in mind, it’s not hard to envisage a scenario where the company is able to reach a $2 trillion market capitalization next year. Such a move would imply a one-year return of around 36% from current levels (lower than this year’s return, so certainly within the realm of possibility if revenue and earnings growth remain stable or accelerate).
Let’s dive into the bull case behind why a $2 trillion certainly seems reasonable for META stock moving forward.
Key Points About This Article:
- Meta Platforms has clearly been among the biggest winners from the most recent AI-infused investing frenzy among technology stocks.
- Here’s the bull case behind why Meta could certainly be headed for a $2 trillion market capitalization over the course of the next year.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
A Look At the Most Recent Quarterly Results
Meta reported record Q3 results, bolstering the case behind why this growth stock can continue to see multiple expansion moving forward. Revenue continued to grow at a blistering pace, surging 19% to $40.6 billion in the third quarter. This number was driven by a 19% increase in advertising spending an a 29% increase in Reality Labs revenue. That’s the segment the company has infamously continued to invest in, involved in the development of various metaverse-related projects the market had previously soured on.
But with increasing revenue from this segment, and a re-focusing of resources on AI initiatives, the company’s losses for its Reality Labs segment appear to be flatlining (around $4.4 billion), leading to earnings growth. This past quarter, the social media giant saw its earnings per share surge to $6.03, up 37% on a year-over-year basis. With that kind of earnings growth relative to its revenue growth, a nice picture is being painted of a company that can enhance its operating leverage and margins over time. That’s what investors want to see.
Importantly, these numbers came with ad impressions growing only 7% and advertising prices on its platforms increasing 11%. In other words, Meta is squeezing more lemonade out of what many investors viewed as a lemon two years ago. Meta is firing on all cylinders, with even its new Threads app seeing 275 million monthly active users during the quarter.
AI Spending Sparks Debate
Meta’s stock price surge of more than 500% since October 2022 has been impressive, and again, much of this has to do with the company’s impressive levels of AI-related spending. Investors are clearly banking on the idea that the company’s investments in its Llama models (using Nvidia GPUs, which are very expensive) will pay off. The development of the company’s Llama 4 model, for example, will require more than 100,000 advanced GPUs, so it’s not going to be a cheap endeavor by any means.
The question many in the market are now asking though is whether these investments will continue to result in earnings growth acceleration over time. I’m of the view that it’s more likely than not, and given the company’s increased focus on efficiency and targeted spending, its current investments are likely to generate continued growth over time.
That’s not to say there aren’t risks with this heavy AI investment. Competition remains fierce in this space, and it’s unclear which companies will come out ahead in the AI race. But it’s also clear that only the most deep-pocketed companies have a shot, and Meta is certainly a top consideration in this regard. Thus, I think as far as positioning is concerned, this is the right move presently.
Strong Buying Interest in META Stock Remains
As mentioned previously, Meta is likely to continue to see strong growth in the coming year, and I wouldn’t be surprised to see a marginal acceleration over the coming four quarters. With that as my base case scenario, I can certainly envision a future in which Meta trades at a $2 trillion valuation over the course of the next 12 months.
The high estimate on Wall Street for where META stock could trade over the next 12 months puts the company at a valuation of more than $2 trillion. So, I’m not alone. But it’s clearly an edge view, and one that requires some imagination.
Of course, investors who were bullish on Meta in the doldrums of 2022 may have had their wildest imaginations blown away by how well the company has performed since then. So, it’s all a relative conversation. But for now, I do think Meta is well-positioned to at least take a stab at this valuation threshold over the next year. Investors may certainly want to position their portfolios accordingly.
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