Investing

Meta Stock's Price is Still Too Cheap—Here's Why

Joey Frenette

Published: January 9, 2025 3:04 pm

2025 just began, yet Meta Platforms (NASDAQ:META) stock isn’t wasting time, gaining close to 5% in the first two trading sessions. Undoubtedly, the social-media, mixed-reality, and generative artificial intelligence (AI) juggernaut and member of the Mag Seven deserves an A-grade for how it has monetized new technologies in recent years.

And with one of the “milder” price-to-earnings (P/E) ratios of the Mag Seven, a case could be made that Meta stock is still undervalued, even as skeptics, bears, and pundits call for the stock market to correct due to overextended valuation multiples.

Indeed, it’s hard not to see yellow flags being waved, with investment legend Howard Marks publishing a letter titled “On Bubble Watch.” As always, Marks’ writings are incredibly insightful and worth the read.

While some parts of the market, most notably mega-cap tech, may be starting to get slightly bubbly, with the Mag Seven stocks in the spotlight, I do think Meta stock stands out as being one of the names in the cohort that most investors are still underestimating.

Whether or not stocks are getting bubbly, Meta stock remains cheap.

Even after the latest surge to $617 per share, shares trade at 24.8 times forward P/E — not exactly a multiple indicative of a “bubble.” Sure, Meta stock has seen cheaper days, notably around two years ago when its epic multi-bagger rally kicked off.

That said, given the pace of bullish developments and Zuckerberg’s proven execution, I’d argue it’s still unfair for Meta to trade at a far cheaper multiple than all but one — spoiler alert: Alphabet (NASDAQ:GOOG) is the one Mag Seven stock going for a lower P/E multiple than Meta — of its peers in the Mag Seven.

Of course, Meta may not be the most trusted brand in the world. Still, there’s no denying the company’s ability to power profits, especially with new AI tailwinds and reset expectations for the metaverse. Indeed, it’s hard to find anyone on Wall Street who views the metaverse as anything more than an expensive roll of the dice at a table where the odds aren’t so great.

Meta Glasses could offer a glimpse of the near-term future of the metaverse.

With the firm no longer selling the Quest Pro, Meta’s fanciest and priciest virtual reality headset, questions linger as to whether mixed reality is rolling over a road bump, held up at a roadblock, or at the end of the road. Either way, Meta doesn’t need the metaverse to pull in big profits anytime in the near future. I think its strategy to start with a lower-cost headset (think the Quest) is a wise dip of the toe into the metaverse waters.

Ultimately, though, it will likely take at least five years for mainstream audiences to put their phones down and the headsets on. Advanced AI and augmented reality (AR) glasses will likely be necessary precursors. The good news for Meta is that it has thrived on both fronts.

The Meta advanced smart glasses, though bulky, certainly do seem like a product that the masses can get behind. Add Meta AI (LLaMA) into the equation, and perhaps Meta will evolve to have the next big gadget to win the world over.

Until then, AI will be busy bringing out the best in its social-media family of apps.

For now, Meta is pulling back on its plan to unleash AI bots across its platforms in response to user backlash. Perhaps it’s best that AI works behind the scenes rather than interacting with users to keep them more engaged. For Meta, AI still has plenty of low-hanging fruit to grab to boost margins. Additionally, big changes such as scrapping fact-checking for community notes moderation could be key to enhancing margins in 2025.

The bottom line

Meta stands out as one of the AI innovators who’s not afraid to try bold new things to elevate growth. With a brave Zuckerberg in the driver’s seat, there’s ample reason to pay a heftier premium on the stock.