Meta Platforms (META 1.39%) is having a great 2023 with astounding gains of 148% so far. What's even better is that, even with the huge stock price jump, shares of the technology giant still trade at attractive levels.
Meta stock currently trades at 37 times trailing earnings. However, the forward earnings multiple of 24 suggests that Meta's earnings will jump nicely over the next year. What's more, Meta's forward P/E is a discount compared to the Nasdaq-100 index's forward earnings ratio of 29.
Meta's stock is definitely benefitting from the broader rally in tech stocks, but it also got a big boost from the company's big earnings beat in the first quarter of the year. If you are concerned that you've missed the stock's red-hot rally, know that there is another catalyst for growth that is just now being recognized. Meta's ongoing efforts in artificial intelligence (AI) could help it maintain its stronger-than-expected growth. Let's see how.
How AI could give Meta's growth a nice boost
Meta may not have launched a consumer-facing generative AI application yet, such as Microsoft-backed OpenAI's ChatGPT or Alphabet's Bard, but it has been integrating the technology into its platform for a long time. It was in 2013 that Meta, which was known as Facebook then, created an AI-specific division known as Facebook AI Research (FAIR) group.
The company has used what it learned from this division to offer AI-driven solutions, such as recognizing products from images and moderating content. But Meta is now looking to push the envelope by deploying more AI features to its services. Meta has revealed several AI features that are under development, such as allowing users to make changes to photos using text prompts and share them to Stories in Instagram, and more importantly, working with advertisers to test AI tools that can help create ad campaigns.
From helping advertisers create text for their campaigns to generating images for the same with text prompts, Meta is moving in the right direction as the addition of such tools will allow it to tap a massive end-market opportunity. Grand View Research estimates that the adoption of AI in digital marketing could grow at an annual pace of 26% through 2030 and generate $82 billion in annual revenue.
Given that Meta's Facebook and Instagram properties reportedly control just over 20% of the global digital ad market, the integration of AI into the company's offerings may help it maintain, or even grow its share in the future. After all, the number of daily active users across Meta's family of apps stood at just over 3 billion in the first quarter of 2023.
Such a massive user base makes Meta an ideal choice for advertisers looking to reach customers. Also, with digital ad spending expected to jump from $567 billion in 2022 to $836 billion in 2026 according to eMarketer, Meta has a huge addressable opportunity ahead of it that could supercharge its revenue growth in the long run.
The company's growth is set to accelerate
Meta Platforms had a disappointing 2022 as the slowdown in digital ad spending stalled the company's growth. It reported a 1% decline in revenue last year to $116.6 billion. But things are expected to improve from 2023 and the company is expected to deliver double-digit growth over the next couple of years.
META Revenue Estimates for Current Fiscal Year data by YCharts
Even better, analysts are expecting Meta's earnings to grow at an annual rate of almost 18% for the next five years, which would be a significant jump over the 6.7% growth it has clocked in the last five. With catalysts such as AI coming into play and the size of the digital ad market expected to grow significantly in the coming years, Meta seems to be in a solid position to deliver consistently strong growth in the long run.
That's why investors looking to take advantage of the proliferation of AI in massive markets such as digital advertising may want to buy Meta Platforms given that it is trading at attractive multiples right now.
