'Magnificent Seven' investing playbook: Meta stock's path to $350 probably runs through AI
Now that summer’s coming to an end, that means it’s time to pull out your scarves, grab a pumpkin spice latte, and reassess your tech stocks. This Yahoo Finance series helps you decode what's happening among the biggest names in tech — Apple, Alphabet, Amazon, Microsoft, Meta, Nvidia, and Tesla — known as the Magnificent Seven. Next up is Meta, the owner of Facebook, Instagram, and a money-burning metaverse operation.
Meta (META) is an ad company.
It's a fact worth restating because while the digital ad market is also rebounding after a tough couple of years, it's also in transition amid the AI boom.
This means that Meta's rhetoric and efforts around AI aren't just posturing — they're existentially important to the company's future. If not from AI, it's not entirely clear where the next phase of growth for Meta comes from.
"The argument I've made is that there's an AI product cycle that's taking place for Meta," JMP Securities analyst Andrew Boone told Yahoo Finance. If you're Meta, "you have a better understanding of contracts, and you do a better job of recommending engaging content to users."
Meta faces tough AI, regulatory landscape
Meta stock has had a tremendous run so far in 2023, rising over 145% year to date. But at $295.89 it's still well below its all-time high of $382.12 on Sept. 7, 2021.
Optimizing AI in its advertising offerings may be the next catalyst that gets Meta back to its highs.
"What will help Meta stay ahead is AI," Debra Aho Williamson, principal analyst at Insider Intelligence, told Yahoo Finance. "It's critical for the company to emerge as a leader in the next generation of digital advertising: AI-enhanced advertising. ... Meta has a growing array of competitors in the fast-moving AI landscape and it must work quickly to stay ahead."
However, there are regulatory concerns for Meta, especially from European regulators.
The last thing Meta needs is anything new that will shake up Meta's business model the way Apple's (AAPL) App Tracking Transparency (ATT) framework did in 2021. When it was first launched, ATT was devastating to social media businesses, including Meta's, as it allowed users to opt out of identifiers for advertisers, or IDFAs, which are the device IDs underlying Apple's framework.
"The concern is not the FTC, but the DSA [Europe's Digital Services Act]," said Boone, adding that "the nightmare scenario is another version of the IDFA."
Williamson agreed, citing concerns around Meta's ability to operate under increasingly active European regulation.
"The DSA will fundamentally change Facebook, Instagram, and other popular platforms," she said. "They must alter their business practices to comply with the restrictions; if they don’t, they will face fines or bans in the region."
What should you do with Meta stock?
The consensus seems to be that Meta still has a lot of room to run and has the ability to get back to those highs.
Currently, Wall Street analyst recommendations for Meta shake out to 59 Buys, seven Holds, and two Sells.
"We believe the stock could see renewed enthusiasm on 2024 upside potential once Street has greater certainty on 2024 spending targets (usually provided with 3Q earnings)," Justin Post and Nitin Bansal, analysts at Bank of America, recently wrote.
Even though it's not the AI company everyone's talking about, Meta seems positioned for some upside — barring regulatory nightmares.
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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