Meta Platforms (NASDAQ:META) stock has been through the thick and thin in the last few years. The worst phase was in 2022 when META stock lost a third of its value and plunged below $100. iOS privacy changes and macroeconomic headwinds impacted advertising revenue for the social media-focused company.
However, with the impact of artificial intelligence being the central theme, Meta has been rebuilding. From November 2022, with lows of $89, META stock has surged to current levels of $465.
Even after a big rally, Meta stock trades at an attractive forward price-to-earnings ratio of 23x. I believe that small corrections would be a good opportunity to accumulate, as Meta Platforms appears likely to create significant value in the coming years.
Invest During the Investment Cycle
It’s important to remember that the markets are always forward-looking. What is likely to happen determines the price-action than what has already happened. This is relevant for Meta Platforms as the company shifts existing resources to investments in artificial intelligence.
Meta expects a capital investment of $35 to $40 billion in 2024. Investments will likely remain around these levels in the next few years, as CEO Mark Zuckerberg guided for a “multiyear investment cycle.”
It’s only after this investment cycle that Zuckerberg expects the company’s AI products to “scale into profitable services.”
Therefore, my broad view is as follows: High investments and cash burn in Reality Labs, Zuckerberg’s effort to build a metaverse platform, will restrict free cash flow in the coming years. At the same time, there is unlikely to be an immediate impact on growth acceleration. However, Meta is investing in the future, and I expect significant value creation after the next 24 to 36 months.
Meta stock is likely to remain in an uptrend. The markets will discount the impact of investment well before the company’s financials indicate it.
A Case For Steady Ad Growth
For the first quarter, Meta reported advertising revenue of $35.6 billion, largely from Facebook and Instagram ads. A few important points underscore my view on sustained growth in advertising revenue.
I must add that factors like regulatory headwinds or macroeconomic concerns can impact growth in the near term. However, the long-term trend in advertising revenue seems to be positive.
The first point is that the U.S., Canada, and Europe contributed 66.9% of the advertising revenue in the quarter. However, in the last two years (Q1 2022 vs. Q1 2024), revenue in the U.S. and Canada increased by 24.4%. Ad growth in Europe was 30.8%, while the Asia-Pacific region say 36.2%. The rest of the world, which includes Africa and the Middle East, grew by 56.7%.
Both in terms of active users and advertising revenue, I expect healthy growth from emerging economies than developed economies. This factor will likely ensure that the advertising business remains the cash cow for Meta.
The Bottom Line: Meta Stock Will Reward Patient Investors
In the coming quarters, Meta’s earnings can fluctuate depending on the macroeconomic outlook. However, I would focus on the fact that Meta Platforms is building a base for accelerated revenue growth in the next few years. Patient investors will be rewarded when investments in AI are delivered.
It’s worth noting that nearly all of Meta’s revenue is from advertising. However, that’s likely to change when the hardware business reaches an inflection point. The global AI wearable market is expected to grow at a compound annual growth rate of 29.8% between 2023 and 2030. By the decade’s end, the market size is expected at $166.5 billion.
Even if Meta can capture a market share of 10% to 15%, it would have an incremental impact of $17 to $25 billion on total revenue. Of course, this is a conservative estimate considering Meta’s level of investments. Additionally, AI investments are not limited to the wearable segment.
Therefore, I believe that Meta stock is worth holding. Considering that there has been a significant rally, it makes sense to accumulate on corrections.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.