Meta Platforms is the IBD Stock of the Day for Monday. Meta stock is rising toward a potential buy point, following a report that it's in talks to provide its AI models to Apple.
The Wall Street Journal reported the discussions early Sunday, citing unnamed sources. While the deal is not finalized, Apple could integrate Meta's AI models into its recently announced Apple Intelligence products, according to the report. Apple plans to integrate several AI-powered features into its iPhone and other products, using its own algorithms and via partnerships. The first such partnership is with ChatGPT parent company OpenAI, as the companies announced earlier this month.
On the stock market today, Meta stock rose nearly 1% to close at 498.91. Shares are approaching a 514.01 cup-with-handle buy point, according to MarketSurge charts.
Apple's AI Plans
A deal with Meta could help Apple offer a broader range of AI options for users, the Wall Street Journal report noted. But it could also help elevate the prominence of Meta's AI efforts. Chief Executive Mark Zuckerberg announced Meta's latest AI model, Llama 3, in April. He has pledged to build the "world's leading AI."
But investors dinged Meta stock following its first quarter report in April, in part because of concerns about how much the company's AI push could cost.
The talks are notable because Apple and Meta are known as major rivals, especially in the virtual-reality headset market. Additionally, a change to Apple's iPhone privacy policies took a big bite out of Meta's ability to sell targeted ads on Facebook and Instagram in 2022.
Zuckerberg is taking an open source approach to AI that includes offering its products free of charge. The company recently integrated its Meta.ai chatbot into Facebook and Instagram. It is unclear how much of a financial windfall a partnership with Apple would provide, the Journal report noted.
Apple has also reportedly held talks with Google parent company Alphabet to use its models. Further, the Wall Street Journal on Sunday said that Apple is also in talks with AI startups Anthropic and Perplexity.
Meta Stock: Q1 Letdown
With a roughly 2% slide last week, Meta stock formed a cup-with-handle pattern, according to MarketSurge.
Meta stock raced out to a nearly 40% gain to start 2024, helped by strong fourth-quarter earnings and plans for its first-ever dividend. But then shares sank 10.5% following Meta's first quarter earnings report. Investors were spooked when Meta offered lower-than-expected second quarter revenue guidance while also detailing plans to boost capital expenditure spending.
But Meta still has the backing of many Wall Street analysts. Analysts at Bernstein acknowledged in a recent client note that there is a bearish case for Meta stock as revenue growth slows against tougher comparisons from a year earlier. Yet there are also reasons for optimism.
"A strong digital ad market alongside newer ad products like click-to-message and Advantage+ generative AI ad creative adoption could combine to offset the expected tougher comps in the second half of 2024," wrote Bernstein analyst Mark Shmulik. "Importantly, we believe there's a combination of strong macro-tailwinds and company-specific efforts Meta can pull to control the shape of revenue growth this year."
The next test for Meta will come with its second quarter report, likely to be published in late July. For its June-ending quarter, analysts expect Meta earnings to increase 57% to $4.69 per share, according to FactSet. Sales are seen rising 19% to $38.2 billion.
Meta Stock: Near Buy Zone
Shares temporarily pushed above Friday's high of 503.54 on Monday, offering a potential early entry.
The IBD Stock Checkup tool shows Meta stock with a Relative Strength Rating of 93 out of a best-possible 99. That indicates the stock outperformed most of the market over the past 12 months.
Meta stock also holds a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup. The score means Meta stock currently tops nearly all other stocks in terms of key performance metrics and technical strength.
