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Meta Platforms Aims for the $2 Trillion Mark: Can AI Propel Its Growth?
In the U.S. stock market, seven companies have surpassed a valuation of $1 trillion, but only five have crossed the $2 trillion milestone:
- Apple: $3.38 trillion
- Nvidia: $3.32 trillion
- Microsoft: $3.05 trillion
- Alphabet: $2.10 trillion
- Amazon: $2.07 trillion
Meta Platforms (NASDAQ: META) may soon aim for that elite group. The company is becoming a significant player in the artificial intelligence (AI) sector, and it’s leveraging this technology to enhance features on its platforms like Facebook, Instagram, and WhatsApp.
Currently, Meta’s market capitalization stands at $1.45 trillion, requiring a 38% rise in its stock price to reach the $2 trillion threshold. Here’s a look at how this transformation could occur by 2026.
Image source: Getty Images.
Artificial Intelligence as a Growth Driver
Meta boasts the largest user base globally with 3.29 billion daily active users across its suite of apps. The majority of its revenues come from selling advertisements targeted at this vast audience; therefore, increased user engagement directly boosts ad revenue.
By employing AI for tailored content recommendations, Meta successfully keeps users engaged. According to CEO Mark Zuckerberg, this strategy has resulted in an 8% increase in Facebook usage and a 6% boost on Instagram within this year.
Advertisers benefit from Meta’s AI tools that enable them to create attention-grabbing campaigns quickly. Notably, over 1 million businesses utilized AI to generate 15 million ads last month, leading to a 7% rise in conversions. Meta envisions a future where businesses simply provide ad descriptions, and AI manages the entire campaign process, enhancing marketing capabilities even for smaller enterprises.
Innovation also lies in new features. Earlier this year, Meta introduced an AI assistant, aptly named Meta AI, accessible across all its applications. This assistant can answer complex inquiries, generate images, and even participate in group chats to offer recommendations or resolve disputes.
With over 500 million monthly active users for Meta AI, the groundwork is solidified for future developments, such as Business AI. This feature aims to deliver tailored virtual agents for every business operating on Meta’s apps, facilitating customer interactions and potentially handling sales, thus unlocking additional revenue streams.
Record Earnings Amid Robust AI Investments
Meta reported a record revenue of $40.6 billion for the third quarter of 2024, up until September 30. Net income reached $15.7 billion, reflecting a 35% increase compared to the same quarter last year.
This surge in profitability has contributed to a staggering 527% rise in Meta’s stock since hitting a low in October 2022. However, to sustain its growth, the company plans significant investments in AI infrastructure, including data centers and graphics processing units (GPUs) from suppliers like Nvidia, which may pose challenges for short-term earnings.
The company’s Meta AI features rely on advance technology from their Llama language model (LLM), one of the leading models in the industry. Current Llama 3 versions use about 16,000 GPUs, but the forthcoming Llama 4 will need more than 100,000 of Nvidia’s H100 GPUs, which are priced as high as $40,000 each, indicating a major financial commitment. Meta has projected capital expenditures related to AI between $38 billion and $40 billion for 2024, having revised this estimate four times this year, with plans for substantial increases in 2025.
Reaching the $2 Trillion Goal by 2026
With earnings per share at $21.23 for the last year and a stock price of $567, Meta currently has a price-to-earnings (P/E) ratio of 26.8. For the stock to align with the Nasdaq-100 technology index’s P/E ratio of 32.3, it would need to rise by 20.5%. Given Meta’s strong financial performance and advancements in AI, it’s plausible that the company could trade similarly to its tech counterparts.
Historically, Meta’s average P/E over the past decade is 37.7. Should the P/E ratio reach 32.3, this could increase its market capitalization to $1.75 trillion. Analysts predict earnings growth of 14.2% by 2025, which could push the market cap to $1.99 trillion, assuming the same P/E ratio.
Consequently, any additional earnings growth in 2026 could clear the path for Meta to join the $2 trillion ranks. Fast monetization of upcoming features like Meta AI and Business AI could expedite this process sooner than anticipated.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also on the board. Randi Zuckerberg, former director of market development and spokesperson for Facebook, is Mark Zuckerberg’s sister and serves on the board. Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool holds shares in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool endorses the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool maintains a disclosure policy.
The views expressed here are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
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