Meta Stock Rallies on AI Ambitions: Is the $60B Bet Worth the Hype?

Meta Platforms (NASDAQ:META) has been delivering some of the most stellar performance in the past few years. Investors have recognized Meta’s “Family of Apps” as a very reliable cash cow. Before AI, Meta Platforms used that cash cow to fund a not-so-exciting virtual reality project called the metaverse. However, AI has started to bring on a lot more hype for Meta Platforms as the company now has more room to grow by investing its money into something that investors find much more exciting.

Meta is now spending tens of billions on AI, and there is a war going on between the Big Caps on who can pour the most money into AI. DeepSeek also didn’t hurt Meta as much, and the recent full-year 2024 earnings report has sent the stock soaring. Let’s look into why and what has been happening.

Meta’s Q4 2024 Earnings Report

Meta reported $48.39 billion in Q4 2024 revenue, up 21% year-over-year. This was mostly driven by robust ad revenue of $46.8 billion, which grew 21% year-over-year. Daily active people (DAP) grew 5% to 3.3 billion.

Ad impressions increased 6% and average ad price jumped 14%. Q4 ads are generally strong for almost all companies, but these numbers are very solid, especially when you look into the whole year.

Full-year revenue is $164.5 billion and grew 22% year-over-year. Net income also grew 59% year-over-year to $62.36 billion. FCF grew 21% year-over-year to $52.1 billion.

Meta Platforms’ Guidance and Forward Outlook

Meta Platforms has its Q1 2025 revenue guidance between $39.5 billion to $41.8 billion. That’s about 8-15% year-over-year growth. This is due to a 3% forex headwind and the fact that 2025 doesn’t have a leap day. However, that’s still some very strong growth from a mature Big Tech company.

It also expects 2025 expenses at $114 billion to $119 billion. This is up significantly from $95.1 billion this year due to AI infrastructure. AI alone is going to drive capex of $60 billion to $65 billion this year, compared to $39.2 billion in 2024.

How Wall Street Reacted to Meta’s Earnings

Shares didn’t move much and actually declined a bit due to softer Q1 guidance, but META stock immediately soared right after. It has reached all-time highs due to AI optimism. Analysts no longer seem to see DeepSeek as something for Meta Platforms to be worried about, since Meta’s AI models weren’t among the very top contenders to begin with. The Llama models are definitely some of the biggest, but it does not compete with o1, Claude, or DeepSeek.

I believe the Street instead sees a lot of opportunity going forward as Meta Platforms is taking DeepSeek very seriously. Meta has the chance to adapt a lot more before competing with those top models, and it can also put all that capex it is planning this year into better use. It is planning a 2-gigawatt data center and over 1.3 million GPUs. If DeepSeek can do what it has done with its older models of GPUs numbering in the thousands, if Meta can learn from DeepSeek, there’s a lot of potential here.

Is the Bullish Sentiment Worth Buying Into?

Whether or not you want to buy into Meta’s bullish sentiment is entirely up to you, but I personally think having at least some money into the big AI companies is worth it. DeepSeek has made everything very uncertain, but what you don’t want to do is miss out on the gains that could come in the coming years if the stars do align and AI companies start doubling down and making extremely good models by using the excess capacity once they learn from DeepSeek how to make their models more efficient.

Something that is worth looking into is that cash flow has been rising just as fast as Meta’s sales. The rising capex doesn’t seem to be a waste of money by any means, and Trump will probably keep the tax rate low at around 12-15% and preserve earnings. If Meta Platforms cuts down on Reality Labs, cash flow could be increased significantly, since that segment lost almost $5 billion in operating losses in just Q4 2024 alone.

Thus, as long as the broader economy continues to do well and the AI hype continues, I think it is worth buying into. Wall Street analysts will likely raise price targets soon after the recent beat.

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