Meta Platforms Leverages AI for Strong Growth Amid Market Competition
Meta Platforms (NASDAQ: META) has performed exceptionally well on the stock market, showing a remarkable 116% increase over the last three years. This figure notably outpaces the Nasdaq Composite index, which rose by 37% in the same timeframe.
The increase in Meta’s stock value is largely due to its expansion in the digital advertising sector. The company has adopted artificial intelligence (AI) tools to capture a greater share of advertising budgets. The trend is well-timed, given that AI adoption in marketing is projected to grow at an annual rate of 25% through 2030, as per Grand View Research.
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The pivotal question remains: Will AI continue to drive Meta’s stock growth over the next three years?
Meta’s AI Innovations Boost Advertising Revenue
On January 29, Meta Platforms reported its fourth-quarter results for 2024. The company experienced a substantial 22% revenue increase, totaling $164.5 billion, while earnings surged 60% year over year to reach $23.86 per share. These results surpassed analysts’ expectations.
Importantly, Meta’s AI tools for advertising are gaining popularity. Chief Financial Officer Susan Li highlighted that the Advantage+ platform, which simplifies ad campaign management for advertisers, saw a remarkable 70% growth year over year in the last quarter, achieving an annual revenue run rate exceeding $20 billion.
In addition, there is a significant increase in the use of the Advantage+ Creative platform. This tool utilizes generative AI to enhance audience engagement through better images and videos, with its adoption having quadrupled in just six months.
Meta is dedicated to maximizing its AI capabilities to boost advertisers’ returns. Last year, the company launched a new machine learning platform named Andromeda, developed in collaboration with Nvidia. This advanced platform has reportedly improved ad quality by 8% by narrowing thousands of ads down to a more refined selection for audiences.
To back its generative AI efforts and core operations, Meta plans to invest between $60 billion and $65 billion in capital expenditures this year—an increase from last year’s $39.2 billion. Some concerns have emerged regarding the returns Meta and similar companies will generate from these substantial AI investments. However, Meta’s focus on AI-enhanced advertising is starting to pay off.
For instance, in Q4, Meta’s average ad pricing increased by 14% compared to the previous year, a significant uptick from the 2% growth seen in the fourth quarter of 2023. Improved ad quality and AI-driven tools seem to be encouraging advertisers to increase spending across Meta’s platforms, potentially leading to strong growth in profits over the next three years.
Potential Investor Returns Over the Next Three Years
Impressive earnings from Meta in 2024 are notable, but analysts predict a modest single-digit increase in earnings this year, projecting earnings of $25.30 per share.
META EPS Estimates for Current Fiscal Year data by YCharts
This anticipated slowdown in earnings growth results from rising expenses related to AI investments. However, projections indicate that Meta’s earnings growth could accelerate into the mid-teens starting next year. If the company achieves earnings of $34.08 per share by 2027 and maintains a trading ratio of 33.5 times earnings—similar to the tech-heavy Nasdaq-100 index—its stock price could rise to $1,141 in three years. This translates to a 65% increase from current levels.
With Meta currently trading at 28 times earnings—below the Nasdaq-100 multiple—investors might find this stock an attractive opportunity for their portfolios, especially considering the company’s strong growth potential.
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Randi Zuckerberg, a former director at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, sits on The Motley Fool’s board of directors. Harsh Chauhan has no stake in the stocks mentioned. The Motley Fool holds positions in and recommends Meta Platforms and Nvidia. The Motley Fool’s disclosure policy applies.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
