Meta Has Outperformed its Mag 7 Peers During Recent Downturn
They say that this is a tech-driven market. The highest allocations in both the NASDAQ and the S&P 500 indexes belong to the mega-cap tech names. Over the past month, Meta has outperformed all of them and is the only stock to have posted a positive monthly gain. Meta hit a recent trough of $450 at the end of July, but has powered higher during a period when other names like NVIDIA (NASDAQ:NVDA) and Amazon (NASDAQ:AMZN) have shown considerable weakness.
| Stock Symbol | 1 Month Performance | YTD Performance |
| Meta Platforms (META) | +6.5% | +52.6% |
| Microsoft (MSFT) | -8.8% | +11.6% |
| NVIDIA (NVDA) | -9.6% | +141.1% |
| Apple (AAPL) | -5.6% | +19.2% |
| Tesla (TSLA) | -17.7% | -16.3% |
| Amazon (AMZN) | -11.7% | +13.5% |
| Alphabet (GOOGL) | -12.0% | +18.8% |
Meta continues to provide investors with the best of both worlds. Not only is it establishing itself as a leader in generative AI technology, but it also has a family of social media apps, including WhatsApp, Instagram, and Facebook. Together, these apps see more than 3.2 billion daily active users (DAU) as reported in the most recent quarter.
Meta is Using AI to Strengthen Its Existing Products
When I first initiated my coverage of Meta’s stock I wrote about how I was bullish on the company’s investment into AI. I talked about how the company would be improving its advertising segment by integrating AI to learn user preferences and behaviors. On the latest earnings call, CEO Mark Zuckerberg acknowledged that all of the capital expenditures being invested into AI will not pay off for years. Combined with a Goldman Sachs report that questioned generative AI’s long-term returns for big tech companies it’s easy to see why the sector saw some weakness this summer.
Despite these headwinds, Meta continues to outperform its peers during both market downturns and rallies. Meta is implementing the €˜free now, monetize later’ philosophy for its open-source Llama 3 generative AI platform. I believe that Meta is waiting to integrate its AI technology naturally into its own ecosystem. The path to monetization for AI will be clearer in the future, but I have my trust in a management team that has followed a similar road for both Instagram and WhatsApp.
Meta Expands Product Line with Smart Glasses
Last year, Meta released its Meta Smart Glasses in partnership with Ray-Ban. Given the success of its initial foray into eyewear, it came as no surprise when Meta announced it was interested in taking a minority stake in Ray-Ban back in July. The deal would see Meta take a 5% stake in Ray-Ban’s parent company EssilorLuxottica (OTCMKTS:ESLOY). The third generation of Meta’s Smart Glasses is expected to be released next year with an added built-in screen display.
Meta’s Smart Glasses are just the tip of the iceberg when it comes to its expansion into eyewear. The deal with EssilorLuxottica provides it access to more than 45 different eyewear brands including Bruno Cucinelli, Chanel, Oakley and Oliver Peoples.
Meta Still Has a Cheap Valuation and That’s Why I’m Still Buying
Despite its strong performance as of late, shares of Meta are trading at just 25.4x forward earnings and 9.1x sales. Even after all of its growth since it bottomed in 2022, Meta’s valuation is the same as it was in 2021. Over the past three quarters, Meta has beaten its earnings estimates by an average of 9.6%, showing consistent and above-average growth.
Given that its forward earnings multiple continues to be lower than nearly every Mag 7 peer, I expect further upside for Meta’s stock for the rest of this year. Meta has a street-high analyst price target of $591.61 which does not seem out of reach if this bull market rally continues into the last quarter of 2024.
Meta stock is an AI play with the security of its lucrative advertising segment. Throw in the expansion into smart eyewear and my conviction in Meta’s stock only gets stronger. I have no problem issuing a Buy rating for the stock and firmly believe that any further dips are buying opportunities for long-term investors.
On the date of publication, Michael Que held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
Michael Que is a financial writer with extensive experience in the technology industry, with his work featured on Seeking Alpha, Benzinga and MSN Money. He is the owner of Que Capital, a research firm that combines fundamental analysis with ESG factors to pick the best sustainable long-term investments.