Meta Platforms Inc. continues its aggressive push into artificial intelligence, drawing investor support despite the growing size of its AI-related spending. The stock has soared nearly 45% from its April lows, buoyed by optimism that CEO Mark Zuckerberg’s AI strategy will drive long-term growth and solidify Meta’s leadership in the tech sector.
Massive AI Investments Fuel Optimism
Last week, Meta finalized a $14.3 billion investment in Scale AI, whose leadership will join Zuckerberg’s team dedicated to developing artificial general intelligence. This move followed Meta’s announcement that its capital expenditures for 2025 could reach as much as $72 billion. Investors have largely welcomed the spending spree, seeing it as a necessary step to maintain Meta’s competitive edge in the AI race.
Strong Market Performance Amid AI Rally
Meta shares rose 2.6% on Monday and are approaching record highs. The company also announced plans to introduce advertisements into its WhatsApp messaging platform. Meta’s rally aligns with a broader rebound in AI-related stocks. The Global X Artificial Intelligence & Technology ETF, which tracks AI leaders including Amazon, is up 32% since early April, outperforming both the S&P 500 and Nasdaq 100 during the same period.
Fund Managers Back Meta’s AI Strategy
Portfolio managers such as Jake Seltz of Allspring LT Large Growth ETF remain bullish. “We’re confident Meta can use AI to drive revenue and accelerate growth,” he said. Similarly, Allen Bond of Jensen Investment Management recently initiated a position in Meta, citing its operational improvements, AI investments, and shift away from its earlier metaverse focus. “AI allows Meta to play offense while Alphabet plays defense,” Bond added, noting Google’s vulnerability to AI-powered search competition.
AI Driving Revenue and Efficiency Gains
Meta’s return on invested capital hit a record 31% in Q1 2024, more than doubling its 2023 levels when metaverse investments weighed on profits. The company is using AI to enhance ad targeting, increase user engagement, and even fully automate ad creation across platforms like Instagram, WhatsApp, and Facebook. New Street Research analyst Dan Salmon estimates AI-powered creative tools could lift Meta’s ad revenue growth by 1% to 2% annually, reaching up to 4% growth by decade’s end.
Valuation Concerns Surface Despite Strong Momentum
While Wall Street remains largely positive, with nearly 90% of analysts recommending a buy, some caution that Meta’s stock may be nearing a ceiling in the short term. Shares are trading at 25 times estimated earnings, slightly above the 10-year average of 22 times. “Rallies like this don’t continue forever,” said Greg Halter of Carnegie Investment Counsel. “It’s still in the buy range, but it isn’t the screaming buy it was not too long ago.”
Conclusion
Meta’s aggressive AI spending continues to pay off in both operational efficiency and investor confidence. While growth prospects remain strong, valuation concerns suggest that future gains may be more measured. As Meta expands its AI capabilities, the company remains a leading player in the evolving tech landscape, but investors are keeping a close eye on whether its rapid ascent can be sustained.
