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In 2023, social media company Meta Platforms (META) (formerly Facebook) emerged as the most impressive member of the "Magnificent Seven" group, propelled by the artificial intelligence (AI) rush. The group also includes other high-performing U.S. tech giants, like Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
Meta’s stock soared a whopping 184% on the year, wildly outperforming the S&P 500’s ($SPX) gain of 25%. Wall Street’s optimism toward Meta stems from the company's commitment to advancing AI research and integrating the technology into its ecosystem, which bodes well for its long-term prospects.
On the other hand, some analysts believe the 169% gain in Palantir Technologies (PLTR) stock last year was based on AI hype that has yet to materialize for the company. While Wall Street rates Meta's stock as a "strong buy," Palantir receives an overall "hold" rating. Let's find out why.
Palantir Technologies Stock
Palantir meets the data analysis needs of private companies and governments. Its newly launched AIP (Artificial Intelligence Platform) has gained traction. Notably, government contracts generate a significant amount of revenue, which protects the company's revenue stream during periods of uncertainty.
In Q3, Palantir’s total revenue jumped 17% year-over-year to $558 million. It also reported GAAP profits for the fourth consecutive quarter.
Palantir caught attention after it secured a $250 million contract with the U.S. Army until 2026 to do advanced tests on AI and machine learning capabilities.
The company has also formed strategic alliances with CAZ Investments and PwC to offer improved data analytics and AI-powered solutions. It ended the quarter with a cash balance of $3.3 billion and an adjusted free cash flow of $141 million.
Financially, with a healthy debt-free balance sheet, Palantir is capable of securing more AI-related partnerships. These partnerships have the potential to increase sales and profits in the coming years.
However, Jefferies Financial Group recently downgraded Palantir stock to "sell," and reduced its target price to $13 from $18, noting that AI hype has exaggerated the stock's valuation. Analysts at the firm believe that while AI is a strong growth driver, it will take time for Palantir to see sizeable revenue from it.
Analysts predict that Palantir's revenue and earnings will grow by 20% and 19%, year-over-year in 2024. Palantir appears to be overvalued, trading at 54 times forward 2024 earnings.
That said, Palantir’s AI-powered solutions are huge growth drivers. If the company can justify its lofty valuation with significant revenue growth in the coming years, it remains a good growth pick.
What is Wall Street’s View on Palantir Stock?
Wall Street’s opinion on Palantir stock is a mixed bag, with a consensus “hold” rating. Out of the 14 analysts that cover PLTR, 2 rate it a “strong buy,” 1 recommends a “moderate buy,” and 4 rate it a “hold.” Additionally, 2 analysts rate it a “moderate sell,” and 5 rate it a “strong sell.”
Palantir's stock has surpassed its mean target price of $14.65. Its high target price of $25, however, implies a 49.5% upside potential over the next 12 months.
Meta Platforms Stock
Meta Platforms is world-renowned for its popular social media platforms, including Facebook, WhatsApp, Instagram, and Messenger, which have fueled its business fundamentals.
Meta's expansion beyond social media and into a vast digital ecosystem opens up numerous growth opportunities. From virtual social gatherings to immersive gaming experiences and e-commerce integrations, Meta's goal is to build a cohesive network in which users spend more time engaging with its products and services.
These outstanding offerings drove Meta's revenue up 23% year on year to $34.1 billion in Q3, while its diluted earnings per share (EPS) increased by a massive 168% to $4.39. Meta's social media platforms are part of its Family of Apps (FoA) segment, which recorded 24% revenue growth and an 87% increase in operating income during the third quarter.
Meta's large user base and extensive data reservoirs attract advertisers to its platform. Advertising revenue increased 23% in the quarter to $33.6 billion.
At the September Connect Conference, CEO Mark Zuckerberg presented the company's AI offerings, which include Quest 3, AI-powered Ray-Ban smart glasses, and the AI Studio platform, among others. Zuckerberg specifically stated in the Q3 earnings call that Meta will prioritize AI investments this year.
While the company continues to invest heavily in AI and the metaverse, it had a hefty free cash flow (FCF) balance of $13.6 billion at the end of Q3.
Analysts predict that Meta will have another record-breaking year in 2024, with revenue rising 13% year-over-year to $151 billion. Earnings could rise to $17.40 in 2024, up 21% from 2023.
Analysts' 2024 revenue growth predictions suggest Meta could produce more than $60 billion in FCF for 2024, increasing the likelihood of its stock reaching $473.
Meta shares are currently trading at about 20 times 2024 projected earnings, which appears reasonable, given the company's remarkable AI prospects in the coming years.
What is Wall Street’s View on Meta Stock?
Overall, analysts are highly bullish on Meta Platforms stock, giving it a “strong buy” rating overall. Out of the 41 analysts covering the stock, 37 rate it a “strong buy,” one rates it a “moderate buy,” two recommend a “hold,” and one analyst rates it a “strong sell.”
The average target price for META is $386.24, which is 8.9% higher than current levels.
META or PLTR: Which is the Best AI Growth Stock?
While Wall Street's choice is clear, I believe both Palantir and Meta are excellent long-term picks, given the AI-fueled future.
However, if I had to choose one, I would go with Meta Platforms. The company's growth prospects in AI and the metaverse are vast, with potential applications ranging from social networking to immersive experiences, e-commerce, and more. As a result, I believe Meta's 2024 performance will be even stronger, leading its stock to the Street-high target price of $435 - and representing a 22.6% upside potential over the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
