Meta’s Heavy AI Spending Justified Says Pro. Is He Right?

Meta Platforms (NASDAQ:META) is spending heavily to advance its position in the AI race, perhaps far too heavily, such that the firm might be at risk of wasting cash that would have been better spent on other initiatives. Undoubtedly, the big, fat AI budget of Mark Zuckerberg’s social-media titan has been the talk of the town, which has caused shares of Meta Platforms to lag the market over the past year.

And while it’s not yet clear how much of an overhang the spending will be on the stock, I do think that there are several scenarios that could play out in the new year that help the name make up for lost time, so to speak. At least one analyst (over at Rosenblatt) is confident in Meta Platforms’ big AI budget and the potential for it to lead to bigger gains down the road.

Year to date, shares of Meta Platforms are up a modest 11%. Compare that to a 16.6% gain for the S&P 500 or the 22.2% for the Nasdaq 100. While the latest bearish plunge might bring back memories of the great implosion of 2021 and 2022, I do think that Meta Platforms is shaping up to be a good buy now that it seems like the average retail investor is already expecting Meta Platforms’ AI spend to result in modest gains. If Meta’s AI serves up far greater growth far sooner than expected?

Well, perhaps Meta Platforms’ latest descent might prove unwarranted and deserving of a rapid move higher. Though the consensus is that Meta Platforms is spending too heavily (again), and will be forced to cut, perhaps deeply, once the AI bets prove excessive, I’d argue that the bull-case scenario is severely undervalued.

Meta Platforms needs to spend money to make even more money

Remember that ads, personalized feeds, and AI play well together. And if there is more room to make AI ads even more valuable, Meta Platforms still might be the AI monetization play to stick with. If the market was wrong about the 2021-22 collapse in shares, I’d say there’s a good chance it might be wrong again, especially as Mark Zuckerberg looks to advance many efforts in the new year, including AI glasses, an effort that, I think, many are underestimating.

Of course, when you hear of AI glasses, you might think immediately of augmented or virtual reality. However, the main attraction, at least in the earlier days, might have more to do with the AI power underneath the specs. And while Meta’s AI has been lagging, I do think that there’s ample room to run as LLaMA looks to close the gap.

Sure, Meta AI might not be leading the pack, but if Google Gemini can leapfrog OpenAI’s ChatGPT, you can bet that there’s still a chance that Meta’s AI has a shot to pick up traction among consumers.

Perhaps AI returns aren’t so far off?

With WhatsApp and other social-media apps bringing Meta’s AI closer to users, and the potential for next-generation AI glasses to bring it even closer, I’d say that heavy spending in AI might be worth it, after all, especially when you consider where AI is going and how broadly monetizable it may be going into the new year.

Some big-name analysts, including the likes of Rosenblatt Securities’ Barton Crockett, see Meta Platforms’ AI spending as justified. In fact, Mr. Crocket is visibly seeing a return on investment. Could it be that Zuckerberg is right to stay aggressive on AI spend, given how much more he sees relative to outsiders criticizing the name for the hefty AI budget?

I’d say it’s more than likely. Either way, perhaps it won’t take all too long before investors gain a clearer picture of the kind of returns one can expect from the firm after what’s been a heavy year of spending. I think Crockett is right on the money to raise his price target (now at a Street-high $1,117, which implies around 68% in gains from here) and act as a contrarian voice in a stock that’s been quite unloved in the past year.