Meta goes big on AI despite Metaverse losses
Social media giant Meta is spending big on AI even as it metaverse division continues to struggle, but the vital role of ad revenue remains.
Zuckerberg pushes on AI
Meta stock had a roller coaster start to 2024, first regaining a $1 trillion market cap before tumbling after the first quarter (Q1) earnings. The big sell-off came as CEO Mark Zuckerberg pledged significant spending increases over the coming years to develop "the world's leading AI assistant." Meta launched major updates to its AI chatbot in April, integrating it across Facebook, Instagram and other apps as it tries to challenge OpenAI's viral ChatGPT release.
Metaverse investment continues
While aggressively pursuing AI, Meta remains heavily invested in building the metaverse virtual reality world. However, its Reality Labs metaverse division continues to lose billions, posting a $3.85 billion operating loss in Q1 alone. Analysts project around $19 billion in losses for Reality Labs in 2024. Meta did gain market share in VR headset sales with the launch of its Quest 3 device, though it now faces new competition from Apple's Vision Pro headset.
Advertising dominates revenues
Despite the AI and metaverse pushes, social media advertising remains the cash cow for Meta, accounting for 98% of revenue. The company dominates digital ad sales along with Google and Amazon. Removal of a key competitor like TikTok could further benefit Meta by reducing competition for user attention and ad spending.
Analyst outlook
Most Wall Street analysts remain bullish on Meta stock for 2024. They project the Facebook parent will see revenue growth approaching 18% and earnings growth of 34% as its AI and advertising businesses advance. The AI investments are seen as critical for Meta's future, even with the near-term higher spending weighing on profits.
How to trade the Meta share price?
LSEG Data & Analytics data shows a consensus analyst rating of ‘buy’ for Meta – 21 strong buy, 34 buy, 6 hold and 2 sell.
Meta share price – technical view
Meta’s share price, which has risen by 38% year-to-date, continues to grind higher from its late-April post-earnings low at $414.50, and has been trying to fill its price gap with the 24 April low at $484.58 but so far to no avail.
Meta Daily Candlestick Chart
A rise above the 24 April high at $510.00 is needed for the Meta share prices’ all-time high at $531.49 to be back at the forefront.
A drop below last week’s low at $454.46 would lead to a less favourable technical outlook, though, with the April trough, the November 2022 to June 2024 uptrend line and the 200-day simple moving average (SMA) at $431.96 to $392.65 being back in sight.
Meta Weekly Candlestick Chart
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