Meta is a big AI spender - and that can give its stock a big boost

By Emily Bary

The Facebook parent's capital-expenditure budget could total $50 billion next year, according to an analyst

As companies pour tens of billions of dollars into spending on artificial-intelligence infrastructure, will they be able to get an attractive return on their investments?

That's a hot topic on Wall Street lately as AI budgets swell, but Raymond James analyst Josh Beck is optimistic that Meta Platforms Inc. (META) will benefit from all its spending - even as the company's total capital-expenditure budget could reach an estimated $50 billion next year.

Such a budget would put "a modest degree of gross margin pressure" on the Facebook parent company, though Beck also sees big potential as "AI investment intensity" eventually lets up, driving "improved incremental margins with an attractive valuation," while the company also sees top-line benefits.

There's an "underappreciated" opportunity to monetize generative AI, and Meta is in a good spot to capitalize on that trend, he wrote, including with its Llama open-source large-language model.

"We believe Llama/open-source strategy is well positioned in enterprise...and some combo of business and/or consumer AIs improve ad monetization with minimal core social business risk," Beck wrote.

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He upped his price target to $600 from $550 in his Monday note to clients, with the new target tying for highest on Wall Street, according to a FactSet tally. The target is about 20% above current levels, with Meta shares down roughly 1% in morning trading Monday.

Beck's price target is based on a 25x multiple of price to 2025 estimated earnings per share. That compares with a 20x multiple for the S&P 500 SPX and a 30x average multiple between Nvidia Corp. (NVDA) and Microsoft Corp. (MSFT) shares. The Meta valuation is justified, in his view, "by increased conviction on [generative-AI] prospects."

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See also: Nvidia has added $1.8 trillion of market cap in 2024. Here's how big that is.

-Emily Bary

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07-01-24 1005ET

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