Meta Platforms Reaches New Heights: A Deep Dive into Its Promising Future
Meta Platforms (NASDAQ: META) has achieved an all-time high, reaching a market value of over $1.5 trillion for the first time. This remarkable increase includes a 66% rise in 2024 and a staggering 387% since the start of 2023. Momentarily, Meta stands as the sixth-most-valuable company in the U.S., following behind Amazon and Alphabet, whose market caps are $1.96 trillion and $2.06 trillion, respectively.
With this in mind, let’s explore the reasons Meta might surpass these two giants by 2026, and why this growth stock remains an attractive investment opportunity despite its impressive rise.
Image source: Getty Images.
The Bright Path Ahead for Meta
Investment success hinges on finding companies that can generate higher profits in the future. While some firms offer dividends and share buybacks, others still hold great potential for growth.
Mature tech companies like Meta, Amazon, and Alphabet combine solid cash flows with future growth opportunities. Among them, Meta has the clearest potential for increasing earnings.
Instagram, owned by Meta, has transformed into an engaging platform that generates significant revenue. The app’s mobile-first approach helps it thrive, as users increasingly create and share content.
Recent features like Instagram Stories, Instagram Live, and Instagram Reels have upgraded the platform from a basic photo-sharing site to a dynamic video-based one. This adaptation has led to higher engagement rates, letting users filter through tailored short clips based on their interests.
The platform’s appeal to advertisers is strong, offering targeted marketing opportunities and efficient mobile payment options. Not only do advertisers enjoy personalized content, but they also access valuable metrics to assess their advertising investments.
Unlike traditional media giants such as Netflix, Meta benefits from user-generated content, minimizing the need for expensive content production.
Embracing AI as a Strategic Advantage
Meta serves as a prime example of a company capitalizing on artificial intelligence (AI) advancements. The firm invests in AI solutions to connect advertisers with consumers, subtly enhancing advertising relevance and engagement.
The utilization of AI has allowed Meta to refine content recommendations, thereby improving app experiences. As users engage longer with the app, advertisers benefit from increased visibility for their ads.
In comparison, Alphabet faces challenges from emerging AI tools like SearchGPT and ChatGPT, potentially threatening Google’s search dominance. Although Alphabet has enhanced its services with AI features like AI Overview, the long-term battle remains uncertain.
Cloud services from companies like Amazon Web Services (AWS) and Google Cloud will likely thrive amid AI integration. However, Google Cloud trails significantly in market share compared to AWS and Microsoft Azure. Thus, many view Meta as the leading AI-focused opportunity among these tech giants.
Future Growth and Valuation Potential
One of the strongest arguments for Meta’s ability to outpace Amazon and Alphabet lies in its valuation. As illustrated in the following chart, Meta holds the second-lowest forward price-to-earnings (P/E) ratio among the “Magnificent Seven,” just behind Alphabet, while boasting the highest free cash flow (FCF) yield.
TSLA PE ratio (forward); data by YCharts.
The FCF yield is derived from free cash flow per share divided by the share price; a higher FCF yield indicates a company generates more cash relative to its market value.
Despite its remarkable surge of nearly 400% since early 2023, Meta remains a relatively cheap stock. This could become even more evident if its earnings growth eclipses stock price increases. A potential valuation expansion could elevate its stock pricing significantly.
Valuation expansion occurs when the market assigns a higher earnings multiple to a company, reflecting improved earnings quality or investor optimism for accelerated growth.
Taking Apple as a reference, it has seen its median P/E rise from 19.8 over ten years to the current P/E of 34.5, largely fueled by advancements in its products and a strengthened high-margin services division.
Meta could similarly deserve a P/E in the range of 30 to 40. Even with substantial losses from its Reality Labs division—totaling $8.33 billion for the first half of 2023—Meta’s profit margins could noticeably improve without these losses being considered.
That said, Reality Labs may eventually contribute positively to profits, as it focuses on metaverse technology, including virtual reality headsets and Ray-Ban Meta Smart Glasses.
Meta can sustain its significant research budget, stock buyback program, and new dividend thanks to strong performances from Instagram, Facebook, and WhatsApp. This allows investors to accept Reality Labs losses, while potential breakthroughs in this sector could lead to substantial growth.
Steady Growth Ahead
Analysts project Meta’s earnings will reach $21.29 per share in 2024 and $24.21 in 2025. Capital investments in AI may suppress earnings in 2025, but share buybacks reducing share count could fuel greater earnings-per-share (EPS) growth by 2026. If EPS rises to approximately $28, just over 15% from the 2025 estimate, it could easily push the stock price to $1,000 at a P/E of around 35.
In summary, Meta is well-positioned to double its value over the next three to five years, while it remains uncertain for its technology competitors, Amazon and Alphabet.
Is Now a Good Time to Invest $1,000 in Meta?
Before deciding to purchase Meta Platforms stock, take note:
The Motley Fool Stock Advisor analyst team recently named what they consider the 10 best stocks for investors right now, and Meta was not included. They believe the chosen stocks could generate massive returns in the near future.
For context, when Nvidia was on this list on April 15, 2005, a $1,000 investment would have grown to $826,130!*
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
