Monday trading saw a 3% increase in Meta’s stock price.
The stock of Meta Platforms Inc. has found another defender as it continues to rise from its year-long lows: a BNP Paribas analyst who believes the company’s investments in artificial intelligence will be profitable.
The fact that Meta (META) does not have a cloud computing business sets it apart from its fellow high-spenders in the Big Tech industry. Because of this, some Wall Street analysts are worried that the corporation won’t be able to profitably use the growing funding it has set aside for AI. Nick Jones, an analyst at BNP Paribas, however, adopted a different stance and began covering Meta shares on Monday with an outperform recommendation.
He admitted that Meta will be allocating a larger percentage of its sales to these AI expenses and that the company may be able to raise its capital expenditures more quickly than competitors. However, Jones stated that from a competitive standpoint, this investment is crucial and will eventually pay off.
“We believe return on these investments will be significantly higher over time than [their] cost and can accelerate Meta’s growth,” he stated. “In our view, the near-term elevated capital expenditure, and resulting margin pressure, is necessary for Meta to solidify its competitive position in the AI race.”
Jones claims that the business has already benefited from AI. He cited “significant strides” in using AI to enhance advertising tools, increase engagement, and improve user experience.
However, the company’s digital assistant, Meta AI, has proven more difficult to validate. Jones added, “We note Meta AI is completely free to the users, whereas advanced features on ChatGPT and Gemini require a subscription,” alluding to the services provided by OpenAI and Alphabet, respectively. “However, Meta AI remains subscale compared to ChatGPT and Gemini.”
Moreover, Jones claims that Meta’s AI model, Llama, “continues to rank poorly on leaderboards,”
“The competition in building a foundation model is intense and we think Meta has fallen behind its competitors,” he stated.
Although Jones was “more cautious” about Meta’s model possibilities, he stated that the Facebook parent business has the chance to increase AI monetization in general and increase its market share of the worldwide advertising budget.
“Ad pricing is expanding even as ad loads are increasing, reflecting robust advertiser demand,” he stated. Jones stated that among the elements appealing to advertisers are Meta’s “unparalleled scale” and potent targeting capabilities.
His goal price of $800 is little over 30% higher than the present pricing. In lunchtime trading on Monday, Meta shares are up 3%.
