Why Meta Platforms Stock Just Hit an All-Time High and Could Be Headed Higher

The S&P 500 just hit an all-time high, but only one “Magnificent Seven” stock is there with it.

That’s Meta Platforms (META -0.09%), which has gone from a disaster just two years ago with a plunging stock price to a company that’s leading the artificial intelligence (AI) transition and delivering blockbuster results in its core advertising business. Investors have taken notice, and the stock is up more than 500% from its collapse nearly two years ago to today.

Let’s look at the factors driving the stock higher and why Meta could still gain from here.

Image source: Getty Images.

Grabbing the AI lead

Nvidia dominates the market for AI hardware, but there’s more to it than just chips. There needs to be a product built on that hardware, of course, and arguably no company has built a more compelling ecosystem than Meta Platforms.

At the Meta Connect Conference this week, CEO Mark Zuckerberg announced that Meta AI has nearly 500 million monthly active users, and it’s on track to be the most-used AI assistant in the world, beating out competitors like ChatGPT, Microsoft Copilot, and Alphabet‘s Google Gemini.

Nearly half of the world uses one of Meta’s platforms daily — including Facebook, Messenger, Instagram, and WhatsApp — giving the company a built-in advantage over competitors and an easy way of introducing new technology to its users.

With its own large language model, Llama, the company’s vertical integration is hard to match.

Meta just rolled out a slew of new features, allowing users to talk to Meta AI, share photos with it, and provide customizable AI that businesses can use for customer service and other forms of assistance.

Over a million advertisers are also using its generative AI tools to build ads as well, showing how broad the reach of its technology is. Those ads even outperformed ones that didn’t use AI.

The core business is on fire

Meta’s advertising business foundered during the industry downturn in 2022 as businesses prepared for a recession that never happened.

But the advertising business has come roaring back since then thanks to the company’s execution in new products like Reels, the proliferation of AI and commerce tools, and a user base that continues to grow.

In fact, Meta is outgrowing other major ad platforms. In the second quarter, its advertising revenue jumped 22% to $38.3 billion. By comparison, Alphabet reported just 14% growth at Google Search and 13% at YouTube, while its Google Network business serving ads on third-party sites declined.

Amazon, which had long outgrown Alphabet and Meta, reported 20% growth in the second quarter to $12.8 billion, and it beat smaller social media platforms like Pinterest and Snap.

Why the stock could move even higher

Meta stock is arguably getting pricey at a price-to-earnings ratio of 29, but the company consistently beat earnings estimates in recent quarters, and it has several levers it can pull to drive its growth from here.

The company continues to spend aggressively on its Reality Labs segment, putting billions of dollars a year on the engine behind AI and projects like the metaverse. There’s room to control some of that spending if investors demand it, as the company demonstrated during its “year of efficiency.”

Meta continues to make strides in hardware with its Quest virtual-reality devices, a collaboration with Ray-Ban to make smart glasses, and the Orion augmented-reality (AR) glasses it just unveiled, though the company says those last ones are likely years away from being available to customers.

Meta believes that Orion is the most advanced pair of AR glasses ever made, and it promises that the billions it has poured into research and development will continue to yield new devices like Orion.

Investors might think of these new devices as moonshots, but only one of them needs to hit to pay off for Meta. And its current valuation doesn’t seem to reflect the potential of its devices, but they could be a significant part of the business in five to ten years.

In the meantime, management is executing effectively in the advertising business, and the company looks well positioned to remain a leader in AI. Meta Platforms is undoubtedly headed for further growth, and as it delivers, the stock will move higher.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon, Meta Platforms, and Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Pinterest. The Motley Fool has a disclosure policy.