Meta's pre-earnings analysis: The "AI potential stock" that cannot be ignored as recommended by analysts

Analysts say that in the field of artificial intelligence, investors may not be able to ignore Meta (META.US), the parent company of Facebook, led by its CEO Mark Zuckerberg, who is laying a solid foundation in the forefront of artificial intelligence. Zuckerberg has stated that the company's AI roadmap requires it to build a "massive computing infrastructure." However, due to competition from other tech giants, as well as cautiousness about upcoming earnings given the high valuation after the stock price surge, some analysts are also cautious.

On April 18, Meta released the early version of its latest large language model, Llama 3, which has been integrated into the company's AI system, Meta AI. Meta AI will be embedded in all of the company's applications, including Facebook, Instagram, and WhatsApp, and can be accessed in all search boxes on these platforms.

Zuckerberg is facing competition from companies like Amazon (AMZN.US) and Google's parent company Alphabet (GOOGL.US), who also want a piece of the pie in the field of artificial intelligence. This week is important for tech giants as Meta, Tesla (TSLA.US), Microsoft (MSFT.US), and Alphabet will all report earnings.

So far, the second quarter has been quite challenging for tech stocks. The stock price of the darling of AI chips, NVIDIA (NVDA.US), plummeted by 14% last week, and the combined market value of the so-called "Magnificent Seven" evaporated by $1 trillion. TheStreetPro analyst James "Rev Shark" Deporre pointed out that after Netflix's (NFLX.US) strong performance triggered a bad reaction, "people are increasingly worried that even strong reports may not be enough."

Analyst: "Intense AI Strategy" Will Boost Meta

Meta is set to release its first-quarter earnings report after the U.S. stock market closes on Wednesday. Analysts surveyed by FactSet expect Meta to have earnings per share of $4.32 and revenue of $36.1 billion in the first quarter, compared to earnings per share of $2.20 and revenue of $28.6 billion in the same period last year. Deporre said, "The market expects strong performance to be announced, but the concern is that the price already reflects this, and the possible scenario is that the rapid growth rate will cool down."

In February this year, Meta announced adjusted earnings per share of $5.33 and revenue of $40.1 billion for the fourth quarter, while Wall Street expected $4.94 and $39 billion; a year ago, Meta reported revenue of $32.2 billion and earnings per share of $1.76, indicating a 25% year-over-year revenue growth and a doubling of earningsMorgan Stanley analysts are optimistic about Meta's performance. In a report titled "Irresistible Zuckerberg" on April 22, the institution pointed out: "Zuckerberg's aggressive open-source artificial intelligence strategy may be the most powerful commercial force for artificial intelligence models, as Llama 3 70b-Instruct is a free GPT-4 level model that can run on consumer-grade hardware."

The analysts wrote: "We believe Meta has shown that unless competitors can demonstrate true step-function improvements in model capabilities and performance, it can disrupt the proprietary economics of basic artificial intelligence models." They did not rate the company's stock.

It is reported that OpenAI, backed by Microsoft, will launch its latest chatbot ChapGPT5 at some point this year. Morgan Stanley analysts stated that if ChapGPT5 "fails to live up to the hype, we believe Zuckerberg's gradualism about artificial intelligence development may be correct." The institution stated: "However, if GPT-5 provides an order of magnitude improvement, it could change the world."

Some analysts are "slightly cautious" about the company's earnings

Investment firm Roth MKM gave Meta a "buy" rating with a target price of $500 before the company announced its first-quarter performance. However, this investment firm also stated that it is "slightly cautious" about the stock after it has risen 36% year-to-date.

The analyst told investors in a research report that the quarterly revenue pace for 2024 is a major point of contention among investors due to stricter comparisons, slowing growth momentum, and the impact of European regulations.

In February of this year, Meta faced privacy complaints as eight EU consumer groups called on regulators to take action against the owner of Facebook for violating EU privacy rules in collecting user data. Complaints filed by consumer groups in the Czech Republic, Denmark, France, Greece, Norway, Slovakia, Slovenia, and Spain to their respective national data protection authorities added to the previous dissatisfaction with Meta's extensive user data.

On April 17, the European Data Protection Board, the EU's privacy regulator, stated that Meta and other large online platforms should allow users to use their services for free and not serve targeted ads.

KeyBanc analyst Justin Patterson lowered the target price for the company on the Meta platform from $575 to $555 and reiterated an "overweight" rating on the stock. In a research report, he stated: "From the expansion of Meta Assistant to the release of Llama 3, Meta continues to make progress in artificial intelligence."

Given the advancements in artificial intelligence, we are eager to know how management is considering returns and capital expenditures. He said that achieving over 20% year-over-year growth in advertising revenue in the second quarter is possible, but he also mentioned that growth in the second quarter may slow downPatterson stated that Meta's revenue impact guidance for the Middle East turmoil has a wide range, which may cause investors to feel anxious, especially if the strong performance in the first quarter slows down. The analyst said, "Compared to the fourth quarter, we are more cautious about the revenue guidance potentially bringing surprises."