Meta Platforms shares moved lower in early Wednesday trading, although the Facebook parent remains within touching distance of an all-time high, following price-target boosts from two Wall Street analysts heading into the group's third quarter earnings later this month.
Meta (META) shares, which have added nearly $600 billion in value this year, have been lifted by both the group's hammerlock in the social media ad market and its potential to capture more corporate spending, with wider profit margins, from the investments it's making in AI-related technologies.
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Ad revenue across Meta's family of apps division, including Facebook, Instagram and WhatsApp, rose 22% to $38.3 billion over the three months ending in June, with ad impressions up 10% from the same period last year.
The group also launched a full-screen video player and a unified video-recommendation system designed to further boost engagement times and expand ad inventories over the coming year and unveiled a new AI model last week, dubbed Movie Gen, that it says can create specialized audio and video clips based on user voice prompts.
KeyBanc Capital Markets analyst Justin Patterson, who raised his price target on the group by $105 to $655 per share in a note published late Tuesday, says that strength is likely to support both third-quarter earnings and the group's near-term outlook.
"Our checks indicate that the ad market remained solid in Q3, and favorable currency movements suggest potential upside to [Wall Street] revenue and profitability forecasts," Patterson said.
AI investment spending benefits META
"Additionally, we believe product cycles at Meta are likely to sustain solid growth into 2025," he added. "Big picture, we believe progress in Facebook Reality Labs and AI are causing more investors to look through operating losses and assign a higher P/E multiple" to Meta stock.
Last month, Meta unveiled the first version of its augmented-reality glasses at a tech event in California, as well as a new version of its Quest mixed-reality headset that has AI technologies built within it. The group also added AI chatbot capabilities to its Ray-Ban Meta smart glasses.
Related: Analyst reset Meta stock price target ahead of Q3 earnings
Wall Street is looking for Meta to post a third quarter bottom line of $5.22 a share on revenue in the region of $40.1 billion, nearly all of it coming from ad sales.
Investors will also focus on the first look into the group's capital spending plans for 2025, much of it tied to AI investments, with the current-year target hovering between $37 billion and $40 billion.
Revenue growth runway
Cantor Fitzgerald analyst Deepak Mathivanan, who nudged his price target $10 higher to $670 per share in a note published Tuesday, says Meta is likely to reiterate its call for “significant growth” in spending. But he says revenue gains will also likely impress despite "lingering discomfort on [return on invested capital] of AI investments."
Related: Analyst revisits Meta stock price target as Facebook parent ramps AI spend
"We think Meta has plenty of runway in ongoing contributors (A+, Reels, recommendations) to revenue growth in [fiscal 2025 and] the impact of [generative-AI] investments could increasingly emerge over the next 12-18 months," he said.
"We expect the depth of engagement to improve as use cases expand and Meta merchandises Meta AI increasingly into various products and services."
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"Overall, we think Meta can sustain revenue growth above mid-teens in FY25E," he added. "This should set a clear path for $27 to $28 in FY25E earnings per share despite the increase in costs such as [depreciation and amortization]."
Meta shares were last marked 1.75% lower in early Wednesday trading to change hands at $582.44 each, a move that would trim the stock's six-month gain to around 13%.
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