Zuckerberg bets heavily on AI, earning market cheers as Meta's stock price soars close to record highs
Meta's continued investment in the field of artificial intelligence (AI) has received a warm response from the market, with its stock price rebounding over 40% since April, approaching historical peaks. The company recently invested $14.3 billion in Scale AI and raised its capital expenditure forecast for 2025 to $72 billion. Despite the massive spending, investors are optimistic about Meta's potential for revenue growth driven by AI. AI concept stocks have regained market favor, with related ETFs outperforming the S&P 500 and Nasdaq 100 indices
According to Zhitong Finance APP, Meta (META.US), which continues to ramp up its strategic layout in artificial intelligence (AI), is receiving a warm response from the capital market. Despite the scale of investment reaching new highs, investors firmly believe that these expensive bets will continue to yield substantial returns.
After rebounding over 40% from its low in April, Meta's stock price is nearing its historical peak. Last week, the company finalized a $14.3 billion investment in Scale AI, whose founder will join the general AI research and development team formed by CEO Mark Zuckerberg. Previously, Meta had just raised its capital expenditure expectation for 2025 to $72 billion.
Jake Seltz, manager of Allspring LT Large Growth ETF, stated, "The massive spending may raise doubts, but we are confident that Meta can drive revenue growth through AI. This confirms Meta's determination to defend its industry leadership. Although the stock price has accumulated considerable gains, we remain optimistic about its long-term growth potential."
Meta's rise coincides with the resurgence of AI concept stocks in the market, as the earnings season alleviated concerns about tech giants cutting back on computing power investments, significantly improving industry sentiment. This stands in stark contrast to the market panic earlier this year caused by low-cost AI models from China, which led to significant declines in stocks like NVIDIA (NVDA.US).
ETFs tracking AI concept stocks like Amazon (AMZN.US) have risen 32% since the low on April 8 (the day before U.S. President Trump suspended tariffs on trade partners, triggering a broad market rebound), during which the performance of the AI and technology ETF - Global X (AIQ.US) outperformed the S&P 500 and Nasdaq 100 indices.
Allen Bond, a portfolio manager at Jensen Investment Management, recently initiated a position in Meta for the first time. In addition to AI investments, he is optimistic about the company's operational efficiency improvements and adjustments to its metaverse strategy.
"Using AI to optimize user data monetization is a clear direction, allowing Meta to take the initiative while Google (GOOGL.US) is on the defensive," Bond mentioned, noting current market concerns that Google may lose market share in search business due to AI services like ChatGPT. "Although AI investments are costly, there is ample evidence that these investments are currently yielding tangible returns."
Data shows that Meta's return on investment in the first quarter reached a historic high of 31%, doubling compared to the period dominated by the metaverse strategy in 2023.
It is understood that Meta is using AI to optimize advertising targeting and enhance user engagement across its applications, including Instagram and WhatsApp Recent reports indicate that Meta is seeking to achieve full automation of advertising creation through AI technology.
Dan Salmon, an analyst at New Street Research, expects that generative AI tools could boost Meta's advertising revenue growth rate by 1-2% annually over the next few years, with an increase of up to 4% by 2030.
Although the market generally anticipates that AI will bring long-term benefits to Meta, it also raises the question of how much further the stock can rise in the short term. Currently, Meta's price-to-earnings ratio is 24.5 times (based on expected earnings), lower than other large tech stocks, but still above its average level of about 22 times over the past decade.
Wall Street is currently generally optimistic (with nearly 90% of tracked analysts recommending a buy), but Meta's stock price is close to the average target price, which means the market has limited expectations for further increases.
Greg Halter, head of research at Carnegie Investment Counsel, stated, "Given its strong growth and reasonable valuation, the stock remains in the buy range. However, such momentum will not last forever, and it clearly no longer has the same buying appeal as it did not long ago."
