How AI Can Power Meta Way Higher

CEO Mark Zuckerberg doesn’t get as much credit as he may deserve for his ferocity and tenaciousness. As the head of Meta, he is widely viewed as the dorky tech guy who stumbled upon a great idea and just happened to build a big social media business.

The truth is he’s a harsh competitor, fierce and determined, astute and capable. It’s those attributes that have contributed to knocking off competitors like MySpace and snapping up Instagram and WhatsApp thereafter.

He is also willing to bet big and admit failures when he messes up as he did with his metaverse idea, which at one point he nearly bet the company on. With Wall Street and investors relentlessly punishing the billions invested in the metaverse, Zuckerberg wasn’t above realizing the ship needed to turn in another direction, and that’s what he precisely what he did.

Now his focus is on artificial intelligence, which has a lot more promise and he’s all in. So will it be the catalyst to the next trillion in market capitalization for Meta shareholders?

The Climb to $1 Trillion & Beyond

It wasn’t long ago the idea of a company reaching a trillion dollar market capitalization seemed preposterous. The GDP of all but the top 17 countries is below that threshold. So it’s rarified air to grow a single company to such a size.

Yet Zuckerberg’s Meta has reached the $1 trillion mark and continued. Now the question is can it join Microsoft, Nvidia, and Alphabet, all of whom have reached the $2 trillion level?

With social media users growing at much slower rates than when Facebook was first in vogue, Meta has a problem with the law of large numbers. It’s simply very difficult to compound at high rates when you’re already so large.

The combination of Facebook, Instagram, Messenger, Threads, and WhatsApp form Meta Platforms but one thread may be sewn through them all: Llama, the most advanced open-source large language model.

How The World Has Changed For Meta

At one point in time, Meta was just Facebook and the social media site focused on friends and family.

Over time, as Gary Vaynerchuk observed, a shift has occurred where the focus has migrated from social relationships to interests.

With the advent of TikTok and Reels, Meta realized that the algorithms were at risk of disrupting its own platform if it didn’t pivot to an AI-powered recommendation engine that served relevant content to users based on their interests.

For Meta that means users consume much more content than they would if they simply logged in daily to view what their friends and family are up to. More hours consumed translates to more ad revenues, and so the cycle repeats.

In a somewhat dystopian-like future, Zuckerberg can envision a day when Meta can be the solution not only to serving ads but creating content too, and choosing audience types and sizes. For marketing executives, the possibility is terrifying but for small businesses who lack the expertise to build and manage campaigns, it would be a slam dunk.

What Naysayers Say

Skeptics argue that AI is nothing but hyped-up chatbots and no formidable use-cases have yet to be observed to justify the enormous valuations that have been seen from the likes of NVIDIA.

Zuckerberg takes the other side of this argument, however, and contends that every business will have its own AI chatbot, and that alone will be a huge driver for Meta AI, which offers such a solution already.

Imagine a small business being able to hire a virtual employee in the form of a chatbot that addresses customer inquiries at a fraction of the cost of a regular customer support representative.

What’s making it all possible is Llama 3.1, which Zuckerberg claims already features 405 billion parameters, so ensuring it’s the most advanced open source AI on earth. And he’s got no plans to stop running fast in the AI wars with Llama 4 coming next year.

Do the Numbers Make Sense?

Professor Aswath Damodaran recently stated that this year the only company among the Magnificent 7 that stood out to him from a valuation perspective was Tesla.

That’s an inauspicious start for a discussion around how Meta can capture the next trillion dollars of market capitalization, but it shouldn’t deter a deeper dive.

For now, Meta trades at a price-to-earnings ratio of 25.5x, which admittedly would be unlikely to make the cutoff that Buffett typically prefers. But it does have something else going for it that may well justify the premium multiple and that is growth.

Net income is set to grow over the next 5 years at an average annual rate of 18.1%. If so, the 2029 P/E ratio sits closer to 12x. And that would certainly make Meta a compelling stock to examine.

It seems that while the Professor isn’t biting, most analysts have a more optimistic view and, of the 56 covering Meta, the consensus price target is $566 per share.

With a perfect Piotroski Score of 9, 25 analysts revising their earnings estimates higher, and trading at a low P/E ratio relative to earnings growth, there is lots to like about Meta. Indeed a compelling valuation may be the only thing that offers some pause, but most everything else lines up well, and demands any savvy investor’s attention.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.