StockTok: Judge rules Meta must face attorneys general lawsuit

Welcome to “StockTok,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

AI CLUSTER: Arista Networks (ANET) said that Meta Platforms (META) has deployed the Arista 7700R4 Distributed Etherlink Switch for its latest Ethernet-based AI cluster. “It’s useful to reflect on how we arrived at this point and the strength of the partnership with Meta,” Arista said. “The AI market changed when ChatGPT burst onto the world and created an unprecedented stir about cognitive AI’s power, impact, and benefits that started to resonate with the wider world. Arista’s partnership with Meta on co-development dates back to the “7368X4″ minipack 100G system released in 2018, followed by successive iterations of OCP-inspired systems that are widely deployed. However, Arista’s experience in HPC, AI and machine learning goes back to the company’s original foundation when many of the first customers were building large compute networks to process workloads – for Oil and Gas, Research, Medical, Finance and others. What characterized the networking requirements in 2008 are not so different from those in 2024 – non-blocking performance, high-speed interfaces, traffic management tools, monitoring and visibility. What has changed is the scale. A typical HPC cluster in 2010 was running at 10G Ethernet, with several hundred nodes connected to a network of modular 7500E series systems. In 2024, the de facto speed is 400G Ethernet, with interconnects running at 800G, and the scale of the AI cluster has increased to many thousands of compute nodes, each containing multiple XPUs. As large AI language models (LLM) expand, higher bandwidths and ever-more challenging workloads are best suited to Ethernet-the debate on IB is resolved!” Arista’s blog comes as shares have seemingly come under some pressure following Meta’s Minipack 51.2T switch announcement, but Wells Fargo thinks “any concerns are misplaced.” The firm has an Overweight rating and $390 price target on Arista shares.

HARMFUL EFFECTS OF SOCIAL MEDIA: Meta must face a lawsuit by dozens of state attorneys general alleging it knowingly contributed to a youth mental health crisis by getting kids hooked on social media, Bloomberg’s Rachel Graf and Isaiah Poritz reported. A federal judge in California on Tuesday sided with the attorneys general in allowing some of the claims over Meta’s Facebook and Instagram platforms to proceed in sprawling litigation over the harmful effects of social media, the authors write.

NETWORK INTERFACE CONTROLLER: Marvell Technology (MRVL) announced the development of FBNIC, a custom 5nm network interface controller ASIC in collaboration with Meta to meet the company’s infrastructure and use case requirements. The FBNIC board design will also be contributed by Marvell to the Open Compute Project community. FBNIC combines a customized network controller designed by Marvell and Meta, a co-designed board, and Meta’s ASIC, firmware and software. This custom design delivers capabilities, optimizes performance, increases efficiencies, and reduces the average time needed to resolve potential network and server issues.

TRUTH+ TV ON THE WEB: Trump Media & Technology Group (DJT) announced that it has successfully launched its Truth+ TV streaming service on the web. At player.truthsocial.tv, Truth Social account holders can now access the full range of Truth+ streaming options on computers, laptops, and mobile phones, while a limited version of Truth+ remains available directly on the Truth Social platform. Viewers without a Truth Social account can create one at the player.truthsocial.tv website.

SOCIAL MEDIA USE STUDY: Academics from Oxford University carrying out a global study of teenage mental health are finding that social media use in teenagers is strongly correlated to higher anxiety and depression, as NHS data shows the number of children being treated by mental health services has surged in recent years, The Financial Times’ Laura Hughes and Amy Borrett wrote. John Gallacher, professor of cognitive health, who is leading the work, said their initial work had found about 60% of 16- to 18-year-olds spent between two and four hours a day on social media sites and that “We found a linear relationship between higher rates of anxiety and depression and time spent networking on social media sites.” The study said the top five most frequently used social media platforms were Instagram, Snapchat (SNAP), TikTok, WhatsApp and YouTube (GOOGL).

TRUTH+ TV APP: Trump Media announced that it has successfully launched an app for Android mobile devices to access the Truth+ TV streaming platform. Now available in the Google Play Store, “Truth+ offers TV programming to Android users focusing on news, entertainment, faith-based content, weather, documentaries, children’s content, and more, featuring both linear TV channels and Video on Demand,” the company said.

ADDITIONAL ANALYST COMMENTARY: OTR Global downgraded its view of Snap to Mixed from Positive, citing checks that show ad spending slowed on the platform in Q3, hindered by inconsistent performance and competition from digital video and social media networks.

Stifel analyst Mark Kelley lowered the firm’s price target on Snap to $11 from $13 and reiterated a Hold rating on the shares. The firm also increased its price target on Meta Platforms to $663 from $590 and maintained a Buy rating on the shares. The analyst told investors in a Q3 preview for the digital advertising group that the firm’s checks suggest accelerating growth was seen in Q3 ahead of agency initial forecasts, which it expects to carry into Q4 with the U.S. election advertising environment ramping and “a fairly robust holiday season.”

Goldman Sachs raised the firm’s price target on Reddit (RDDT) to $68 from $60 and kept a Neutral rating on the shares. The firm increased revenue estimates to reflect continued strong user growth and engagement trends based on its channel checks. Additionally, Goldman boosted price target on Meta Platforms to $636 from $555 and backed a Buy rating on the shares. The firm increased forward revenue growth estimates in both the second half of 2024 and 2025 to reflect both more positive channel checks on Q3 growth and increased confidence in tailwinds from several key growth drivers sustaining over the medium-to-long term. Goldman sees a path to Meta delivering at-or-above its revenue guidance range for Q3 and sustained mid-teens total revenue growth through 2025.

Needham reaffirmed a Hold rating on Zoom Video (ZM) after attending the company’s investor day and flagship Zoomtopia customer conference. Zoom has updated its long-term financial targets and introduced a plethora of new products that leverage AI as its investment of over $1B over the past three years is beginning to show results in the form of a robust expanding AI-first product portfolio, the analyst noted. Needham added however that it still has concerns for how quickly Zoom can gain meaningful share in the enterprise segment compared to Microsoft (MSFT) or in a crowded contact center market.

Roth MKM upped the firm’s price target on Meta to $620 from $550 and held a Buy rating on the shares. The firm remains bullish on Meta’s medium-term and long-term prospects, though it is also taking an incrementally cautious stance heading into Q3 earnings amid “mixed” channel checks, a pullback from Chinese e-commerce advertisers, and buyside expectations for a clean beat and raise quarter having a “minimal margin of error”, the analyst told investors.

Barclays cut its price target on Sprout Social (SPT) to $38 from $48 and reiterated an Overweight rating on the shares as part of an on-cycle software Q3 earnings preview. The firm’s supplier checks “ticked down which makes it difficult to get overly excited on software for the Q3 earnings season.” It likes the set-up for Dynatrace (DT), with potential for a beat and raise quarter, and also notes weaker Microsoft checks, but thinks this could be priced in. Barclays also sees a tougher set-up limiting upside for DoubleVerify (DV).

Scotiabank initiated coverage of Meta with a Sector Perform rating and $585 price target. The firm does not have a high level of confidence that consumers will use Meta’s services more in the future as it does for both Amazon.com (AMZN) and Alphabet. Meta shares have been supported by cost cutting and an acceleration in growth, but accelerations in one year led to tough comparables in the following year, and cost cutting “can’t on forever,” the analyst said.

Raymond James raised the firm’s price target on Reddit to $80 from $70 and reiterated a Strong Buy rating on the shares. also, the firm elevated its price target on Meta Platforms to $650 from $600 and maintained a Strong Buy rating on the shares. Heading into digital advertising earnings season, the firm retains its constructive stance on Meta Platforms and Reddit. Raymond James’s ad agency checks suggested 1%-1.5% Q3 growth upside on total ad spend with outperformance skewed towards Meta and Google.

Truist analyst bumped the firm’s price target on Meta Platforms to $650 from $570 and kept a Buy rating on the shares. The firm expects the company’s Q3 results to come in at the high end of guidance of 13%-20% for revenue growth amid sustained social ad demand and higher CPM, the analyst contends. Meta’s AI investments also continue to drive better ranking and recommendation results for users and advertisers, the firm added.

Benchmark increased its price target on Zoom Video to $85 from $83 and backed a Buy rating on the shares, citing the company’s revised long-term sustainable margin assessments unveiled at yesterday’s Zoomtopia financial session. “Even more importantly,” CEO Eric Yuan’s keynote and the bevy of new AI-related products within Zoom’s “federated” AI approach conveyed Zoom’s “superior pace of innovation off its AI-first platform and cloud emphasis versus competitors,” the analyst commented.

Lastly, Stifel boosted the firm’s price target on Zoom to $70 from $65 and reassessed a Hold rating on the shares after attending Zoomtopia and seeing first-hand numerous AI product demos as well as sitting in on the company’s analyst session. The announcement of Zoom AI Companion 2.0 was “the biggest highlight of the event,” says the firm, which sees this moving Companion from “assistant” to “assistant + agent”. The analyst continues to see Zoom’s AI advancements as “top-quartile in our coverage group,” and believes Wednesday’s announcements around paid AI SKUs across the Zoom Workplace better position the company to translate impressive product development into top-line acceleration but given the nature of competition and a consistently challenging retention dynamic, Zoom remains in the “prove it” stage, the analyst noted.