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With the rise of artificial intelligence (AI), the "Magnificent Seven" stocks might now officially be the most talked-about companies in the stock market. Bank of America analyst Michael Hartnett included the seven renowned American tech giants - Apple (AAPL), Amazon (AMZN), Alphabet (Google's parent company) (GOOGL), Meta Platforms (META) (formerly Facebook), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA) - in this list.
Though the AI wave has accelerated the growth of these companies since last year, causing their stocks to skyrocket, AI isn't the only reason to like them. Over the last few years, these seven have represented innovation and profitability, while maintaining their strong market position.
Following their remarkable streak in 2023, the majority of these seven stocks have risen significantly this year, as well - with a few notable exceptions:
- Apple: down 11.4%
- Amazon: up 16.9%
- Alphabet: down 3.4%
- Meta Platforms: up 44.9%
- Nvidia: up 86.4%
- Microsoft: up 8.9%
- Tesla: down 27.5%
Besides Nvidia, Meta Platforms appears to stand out, having significantly outperformed the S&P 500 Index’s ($SPX) gain of 7.6%. Let’s find out if Meta is the best of the "Magnificent Seven" stocks to buy now.
Meta Platforms Is On The Right Track
Until October of last year, investors were wondering if Meta would be able to join the $1 trillion market cap club alongside some of the other tech titans. As of today, with a market cap of $1.3 trillion, the social media tech company is officially part of the club.
While initially popular just for Facebook, Meta now has an empire of wildly accepted social media platforms such as Instagram, WhatsApp, Messenger, and newly introduced Threads. According to CEO Mark Zuckerberg, over 3.1 billion people use at least one of Meta’s applications.
According to Statista, three of Meta's platforms are among the top five most popular social media networks globally. In 2023, Facebook reported $3.07 billion in monthly active users (MAU).
This massive consumer loyalty is driving Meta's revenue and profits. In the latest fourth quarter, its Family of Apps (FoA) segment, consisting of its social media platforms, generated $39.0 billion in revenue, accounting for 97% of total revenue. The segment’s operating income stood at $21.0 billion, a growth of 97% year-over-year.
On the other hand, the metaverse-focused Reality Labs (RL) segment has struggled in recent quarters. However, the segment generated a 47.1% year-over-year increase in revenue in Q4, owing to a jump in sales for its mixed reality headset, Quest 3, launched last year.
For the full year 2023, Meta’s revenue and diluted earnings per share grew by 16% and 73%, respectively.
Sky Is The Limit For Meta Stock
Aside from Quest 3, Meta released several AI-powered products last year, including the Meta AI-powered Ray-Ban Meta smart glasses and generative AI stickers, among others.
Furthermore, the Reality Labs segment is slowly recovering. It has more scope in the expanding global metaverse market, which is expected to be worth $1.3 trillion or more by 2030.
The company is also seeing strong growth on the WhatsApp Business platform. What’s more, Threads reported around 130 million active users in 2023. Meta's CFO, Susan Li, stated that monetization opportunities for Threads could be developed in the future.
Social media being its dominant business, Meta largely depends on advertising for revenue. In 2023, Meta’s ad revenue stood at $131.9 billion, an increase from $113.4 billion in 2022. While the ad market struggled last year, experts anticipate it to recover this year, adding to Meta’s growth.
On the balance sheet, it finished the quarter with $65.4 billion in cash, cash equivalents, and marketable securities, as well as $18.4 billion in long-term debt.
Meta Is Now a Dividend Stock
Another positive development in Q4 is that Meta is now a dividend-paying stock. Thanks to its massive free cash flow balance of $11.5 billion, Meta announced its first quarterly dividend of $0.50 per share. With the increase in earnings and FCF, investors can expect dividend payments to continue on a quarterly basis. The company also announced a $50 billion increase to its share repurchase program.
Management anticipates Meta’s first quarter of 2024 revenue to land in the $34.5 billion to $37 billion range. Analysts' estimates are in the same range.
Looking ahead, analysts expect Meta’s revenue to increase by 17% year-over-year to $158.4 billion in 2024. Additionally, EPS is expected to grow by a massive 34.4% to $19.98. Furthermore, in 2025, revenue and earnings are expected to jump by 12.4% and 16%, respectively.
Meta’s stock is trading at about 21 times 2025 projected earnings, which seems reasonable for a stock with outstanding long-term AI opportunities. Meanwhile, its peers Amazon and Microsoft are trading at 32x and 30x forward earnings, respectively.
What Do Analysts Expect From Meta Stock?
Out of the 44 analysts covering Meta stock, 39 have a “strong buy” recommendation, one rates it a “moderate buy,” three suggest it’s a “hold,” and one suggests a “strong sell.”
Meta is trading close to its average price target of $500.98. Its Street-high estimate of $575, however, implies a potential upside of about 12% in the next 12 months.
The Bottom Line On Meta Platforms Stock
In the Magnificent 7 group, Nvidia, Alphabet, Microsoft, and Amazon are also expanding rapidly and experiencing explosive growth, thanks to AI. Given that, it is difficult to single out Meta Platforms as the crown jewel.
However, I believe the company is one of the most promising AI investments to make now. As Meta continues to explore its AI capabilities, along with untapped potential in some of its segments, it could see more growth than anticipated. All in all, Meta remains an excellent stock to buy and hold for the long haul.
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.
