Still time to buy this American tech stock and AI leader

Already a very profitable tip, analyst Rodney Hobson believes this famous company is capable of going even higher.

5th February 2025 09:11

Home of popular social media sites and a leader in artificial intelligence, Meta Platforms Inc Class A (NASDAQ:META) saw its shares soar during most of last year. Then it was caught up in a wide-ranging sell-off in the technology sector. Investors need to decide if the stock had run too far ahead or whether the downward move at the end of January was just a blip.

Confusion was caused when fourth-quarter results came in ahead of expectations but were accompanied by guidance for this year that were below inflated hopes.

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Meta reported net income 49% higher at $20.8 billion in the three months to the end of December, with earnings per share of $8.20 up 50%, double the increase that analysts had hoped for. Revenue was up 21% to $48.4 billion, easily outpacing rising costs, so extra sales are translating into even higher profits. Operating margins were a remarkable 48% for the group and a massive 60% in the core social media business.

The increases in revenue and profits were admittedly slightly lower than those recorded earlier in the year but were highly impressive even so. Advertisements on sites such as Facebook, Instagram and WhatsApp continue to rise despite Meta charging more for them.

The group indicated that revenue would be up no more than 15% in the current quarter, which would be impressive in many industries but would be a further slowdown in a sector where investors’ hopes have become stratospheric. There is no forecast yet for the full year, which introduces fears that the situation may deteriorate further.

Chief executive Mark Zuckerberg, however, has great ambitions for 2025. Not surprisingly, he sees this as a big breakthrough year for AI, with 1 billion people signing up for some sort of intelligent personal AI assistant, hopefully with Meta bagging the lion’s share. AI glasses are another area offering great expectations.

This will all cost money in investments on top of routine costs, so he had better be right about WhatsApp and other parts of the business gaining market share. Already Meta’s social media platforms connect 3 billion customers with 10 million advertisers and use the data collected to help advertisers target their most fruitful audience. Almost all the group revenue comes from advertising.

Meta does have the vast resources to pour $60 billion this year alone into developing data centres, AI and the infrastructure needed for the technological future.

One imponderable is what action President Donald Trump will take. He has already demonstrated that he is not all talk, and rival technocrats Elon Musk and Jeff Bezos have been closer to the new president. Zuckerberg has tried to make up for lost political ground by praising an administration "that is proud of our leading companies, prioritizes American technology winning, and that will defend our values and interests abroad”. That may be enough – for now.

Source: interactive investor. Past performance is not a guide to future performance.

The shares have soared from $430 to just above $700 since last May yet the price/earnings ratio is still only 30, hardly a challenging multiple for such a go-ahead company with great growth prospects. There is a dividend and the company promises to return more cash to shareholders through dividends and share buybacks, but the yield at the moment is a miserly 0.3%.

Hobson’s choice: Well done anyone who bought the shares when they dipped just below $100 in November 2022 and hung on for a 600% gain. Even those who took my advice in August 2023 to buy on a dip below $300 have more than doubled their stake. Do not let the recent bout of nervousness cause you to panic. For laggards, though, it is not too late to buy. There is even more to come.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

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