Shares of Meta Platforms (NASDAQ:META) have seen substantial gains over the past year, rising over 90%. However, its recent strategy of offering advanced artificial intelligence (AI) models for free has raised investor concerns, slowing the stock’s upward momentum.
Meta is aggressively investing to enhance its AI capabilities. Despite this substantial investment, the company is providing its latest and most advanced AI models to the public at no cost, sparking worries about monetization and potential short-term earnings pressure.
In April, Meta released Llama 3, its latest AI model, for free. Since then, Meta’s stock has declined by about 5.6%, underperforming the Nasdaq 100 (NDX) and S&P 500 (SPX), which gained about 4.7% and 5%, respectively, during the same period.
Higher Investment to Hurt Earnings in the Short-Term
Meta’s decision to offer its latest AI models for free could broaden the adoption of its AI technology and hurt competitors. This strategy is expected to open up significant long-term revenue growth opportunities.
However, according to the TipRanks Stock Analysis tool, “Bulls Say, Bears Say,” analysts bearish on META stock expect an increase in capital expenditures due to the significant investments in AI.
Exane BNP Paribas analyst Stefan Slowinski initiated coverage of Meta Platforms on May 2 with a sell rating and $360 price target. Slowinski expects Meta’s AI spending to spike without new revenue streams to match these capex. She sees no clear path to monetization.
Is Meta a Good Stock to Buy?
While Meta’s investments in AI could increase costs and hurt earnings in the near term, most Wall Street analysts covering the stock recommend a Buy. Its AI investments will likely drive engagement, which in turn will drive advertising revenue. Moreover, its focus on reducing costs will likely support the earnings growth rate.
Meta stock has a Strong Buy consensus rating with 36 Buys, three Holds, and two Sell recommendations. Analysts’ average price target on META stock is $522.49, implying 10.72% upside potential from current levels.
