Meta Platforms, Inc. (META) delivered a strong performance in the third quarter, exceeding analysts’ expectations on both the top and bottom lines. This impressive result was fueled by robust ad revenue growth, driven in part by the company’s increasing focus on AI technologies. However, Meta’s plans for significant investments in AI, particularly in its Reality Labs division, have sparked mixed reactions from analysts. While some applaud the company’s commitment to innovation, others are concerned about the long-term return on investment.
Bank of America Securities analyst Justin Post maintained a ‘Buy’ rating on Meta and raised the price target from $630 to $660. He labeled Meta an ‘AI Story’ and highlighted the rapid adoption of Llama and Meta AI, leading to increased ad revenue estimates. Post anticipates Meta’s AI-driven ad improvements to have a significant impact by 2025.
Rosenblatt analyst Barton Crockett, also maintaining a ‘Buy’ rating with a price target of $811, echoed similar sentiments. He believes Meta is shifting from a year of cost optimization in 2023 to a year of ROI on larger investments in 2025. Crockett pointed out that early evidence suggests a strong return on investment from Meta’s AI investments, which contributed to the 20% revenue growth. He believes that this trend could sustain growth despite increasing capital investment.
While optimistic about Meta’s AI strategy, Goldman Sachs analyst Eric Sheridan maintained a ‘Buy’ rating but lowered the price target from $636 to $630. Sheridan highlighted the company’s strong advertising performance and revenue guidance suggesting continued growth into the fourth quarter. He also acknowledged the role of AI in driving user growth but expressed concerns about the continued operating losses in Reality Labs.
In contrast, Needham analyst Laura Martin reiterated an ‘Underperform’ rating on Meta, citing the company’s guidance for increased capital expenditures related to AI development as a major concern. Martin highlighted the ongoing losses in Reality Labs and Meta’s significant spending on the Metaverse. She questioned the rationale for investing in Meta now, given the company’s two to three-year investment cycle.
As of Thursday, Meta Platforms shares are down 3.38% at $571.66. Despite the positive earnings report, the market appears to be wary of the substantial investment required to capitalize on AI and the Metaverse, a sentiment reflected in the mixed analyst reactions.
