Shares of social media giant Meta Platforms (NASDAQ:META) plunged last week as the company’s higher capital expenditure guidance to support its artificial intelligence (AI) ambitions overshadowed the market-beating first-quarter results. Several analysts slashed their price targets for Meta stock to reflect near-term weakness and the impact of higher investments on earnings. That said, they remain confident about the company’s long-term growth story and its ability to leverage AI to boost its financials.
Meta shares have declined more than 10% since the announcement of Q1 results but are still up over 22% year-to-date.
Meta’s Q1 Performance
Meta Platforms’ Q1 2024 revenue grew 27% year-over-year to $36.5 billion, while earnings per share (EPS) jumped by an impressive 114% to $4.71. The solid growth in the Q1 bottom line reflected the recovery in the digital ad market and the benefits of the company’s efficiency measures.
Despite the robust earnings, investors were concerned about the company’s revised outlook, which reflected increased expenses related to higher infrastructure and legal costs and a rise in capital expenditure (capex). In particular, the company expects this year’s capex in the range of $35 billion to $40 billion, up from the prior outlook of $30 billion to $37 billion. Through the increased capital expenditure, the company intends to accelerate its infrastructure investments to support its AI roadmap.
Given the significant losses associated with META’s Reality Labs division, investors are worried about the additional pressure from increased investments in the company’s AI goals.
Analysts Remain Upbeat About Long-Term Growth
Following the Q1 print, Roth MKM analyst Rohit Kulkarni increased his price target for Meta Platforms stock to $510 from $500 and maintained a Buy rating. Kulkarni thinks that increased operating expenses and capex will likely be a drag on the bulls’ 2025 EPS estimate of more than $25. That said, the analyst pointed out that META shares are trading below a P/E multiple of 17x (based on 2025 earnings estimate) and suggested that investors should buy the stock amid the ongoing pullback.
Meanwhile, JPMorgan analyst Doug Anmuth reaffirmed a Buy rating but lowered his price target for META stock to $480 from $535 to reflect his reduced EPS estimates. Anmuth noted that the company is optimistic about its AI ambitions more than ever before. Despite the significant investments, Anmuth still expects double-digit revenue and EPS growth in 2025 and 2026. Further, he highlighted Meta’s strong track record of delivering returns on higher spending.
Likewise, Wolfe Research analyst Deepak Mathivanan maintained a Buy rating on META stock but lowered the price target to $500 from $530. He believes that “In terms of fundamentals, META’s LT [long-term] business outlook remains intact.”
Mathivanan contends that the company’s ongoing investment cycle would help it continue to deploy advanced AI models and create meaningful monetization opportunities over the long term. The analyst added that META remains the top pick in the Wolfe Alpha List.
What is the Target Price for META Stock?
With 40 Buys, two Holds, and one Sell, Meta Platforms scores a Strong Buy consensus rating. The average META stock price target of $547.45 implies nearly 27% upside potential.
Conclusion
Meta Platforms’ increased AI investments outlook has triggered concerns among investors about the impact of higher capex on earnings. Despite near-term pressures, most analysts are confident about the company’s ability to enhance its offerings with AI and boost its business over the long term.
