Meta Platforms (META) has had a very robust performance over the last twelve months, ranking second only to Nvidia (NVDA) and Tesla (TSLA) among the “Magnificent 7” gainers during this period. As a long-term Meta bull, I’m quite convinced that the company should retain its overperformance throughout 2025 primarily because (1) the market is more supportive of large CapEx spending; (2) valuations are far from overpriced, especially adjusting for growth; (3) Meta’s new content policy is unlikely to impact negatively the company’s bottom line.
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In this article, I’ll explore each of these topics further and explain why I have a positive outlook for the company in 2025.
AI Spending Concerns Are Likely Fading
Many of the reasons I see Meta thriving this year are tied to its massive investment in AI, which should continue to pay off big time.
Looking at Meta’s most recent quarter, the company posted solid results across the board, but there was some hesitation in the initial share price reaction. That had to do with updated guidance on capital expenditures (CapEx). Now, Meta expects CapEx for 2024 to fall in the range of $38-40 billion, up from the previous forecast of $37-40 billion. Even more interesting is that Meta’s projected CapEx could jump again in 2025, potentially reaching $50-60 billion.
As with other mega-cap tech companies, it’s clear that those investing heavily in AI are reaping the rewards. The only catch is that, in the short term, margins might be a little tighter than analysts had expected. Having said that, Meta’s stock has resumed its upward trend following Q3 earnings. However, with some volatility, trading close to its all-time highs, suggesting the market isn’t too spooked about the potential for margin pressure.
Meta’s management is also transparent about the fact that AI will unlock a ton of new opportunities to strengthen its core business. For example, AI should help boost the performance of Reels ads, leading to stronger returns on investment (ROI) in the years ahead. We’re already seeing early signs of these improvements, with mid-to-high single-digit growth in time spent on the platform driven by video recommendations and an increase in ad impressions in the same range.
Meta Is Not Overvalued At All When Adjusted for Growth
Another important factor that could drive Meta stock higher in 2025 is its current valuation, which seems to be quite de-risked when factoring in the company’s expected bottom-line growth.
Take Rosenblatt Securities’ four-star analyst Barton Crockett’s forecast, for example. He has a $811 per share price target for Meta—implying a ~34% upside. According to Crockett, Meta’s ad revenue has grown nearly 20%, and with continued investments in AI and margin expansion, that growth should continue in 2025. Plus, Meta has been active in share repurchases, which boosts its EPS. To put that into perspective, the company repurchased $48.2 billion worth of its stock over the past year and reduced its float by about 10% in the last three years.
Crockett also points out that Meta trades at a price-to-earnings ratio in the high 20s. If growth expectations for Fiscal 2025 align with this multiple, the stock could be on track for a PEG ratio close to one. However, for this to happen, Meta would need an EPS growth rate of 27%. That’s much higher than the consensus forecast, which is ~12% growth by the end of 2025. Although this is a challenging feat to achieve, it is not unattainable, given the company’s solid track record of beating estimates over a considerable range.
That said, if we look at the bigger picture, Meta still appears to be fairly valued. With an expected compound annual growth rate (CAGR) of 17.6% for EPS over the next three to five years, Meta would have a PEG ratio of about 1.5x. This would still place Meta’s valuation multiple just behind Alphabet (GOOGL) and Nvidia among the “Magnificent 7” tech peers.
Meta’s End of Fact-Checking Won’t Significantly Impact the Company
Another issue that’s been in the news lately is Meta’s decision to end its fact-checking program in favor of a community-driven “Community Notes” model. This change shouldn’t overshadow the company’s strong outlook, whether from an advertising or internal spending perspective.
Meta remains a top platform for advertisers, mainly because of its massive reach through Facebook and Instagram, where users spend an average of two hours daily. Moreover, these platforms’ user-friendly tools for tracking ad performance and return on investment add incremental attractiveness for advertisers. As a result, Meta has managed to grow its ad business faster than its competitors over the past year. Given Meta’s platforms’ high Return On Investment (ROI), I don’t expect advertisers to leave the platform due to content policy adjustments, even if some may disagree with the changes to some extent.
On this front, it’s worth noting what Mark Mahaney, a five-star analyst at Evercore ISI, has to say. He downplays the impact of Meta’s new policy changes, calling the associated costs “pretty small stuff.” With Meta pulling in around $160 billion in revenue and operating at over 40% margins, Mahaney believes these compliance costs are a financial non-issue.
Is META A Buy, According to Wall Street Analysts?
At TipRanks, Wall Street analysts are overwhelmingly bullish on META stock. Of 44 analysts, 39 have a Buy recommendation, four are neutral, and only one is bearish. The average price target is $688.34, which suggests a potential upside of 13.15% from its current price.
Conclusion
It can be challenging to find high-quality tech companies to invest in that are trading at appealing valuations in today’s arguably rich-priced market. Still, I believe Meta could be one of them.
Although massive CapEx spending should continue this year, as long as the company keeps posting bottom-line growth—despite potential margin fluctuations—above market expectations, I think the stock is set to climb. Also, fears about the new content policy are probably overblown. In fact, I believe it could actually become an opportunity for Meta to attract even more advertisers as a more democratic platform.
