Meta Platforms (META 2.33%) stock has witnessed a huge turnaround in its fortunes this year, rising a whopping 148% so far thanks to the improving scenario in the digital advertisement market as well as the company's focus on integrating artificial intelligence (AI) into its applications. And the best part is that these catalysts are expected to send this tech stock even higher.
According to Citi analyst Ronald Josey, Meta stock could hit $385 in the next three months on the back of a favorable digital ad market and the potential unveiling of new AI products. That would translate into a 29% jump from current levels. It is worth noting that Josey's price target is almost in line with the $377.50 median price target that Meta carries per a consensus of 48 analysts covering the stock.
Let's look at the reasons why shares of Meta could keep surging higher and why buying this tech stock is a no-brainer right now.
NASDAQ: META
Key Data Points
Digital ad spending is picking up
The improving health of the digital ad market is one reason why Citi is anticipating Meta stock to surge higher. Media investment firm Magna recently upgraded its advertisement spending forecast for the U.S. market. It now expects the advertisement industry to grow 5.2% in the U.S. this year compared to its earlier expectation of 4.2%.
Magna adds that digital media spending is the driving factor behind its improved forecast. The firm expects a 9.6% increase in digital ad spending in the U.S. this year, driven mainly by an improved economic outlook. Meanwhile, cooling inflation may also encourage marketers to open up their wallets and drive higher spending.
In all, global digital ad spending is expected to jump 10% this year to $602 billion. The industry's growth is expected to improve slightly in 2024, with an 11% year-over-year jump to $668 billion. The good news for Meta investors is that the company seems to be winning market share in digital advertising. The company delivered $31.5 billion in advertising revenue in the second quarter of 2023, a 12% increase over the prior year, which means that it is growing at a faster pace than the digital ad space.
Meta has guided for third-quarter revenue of $33.25 billion. That would be a 20% jump from the third quarter of 2022, when the company's top line was down 4% year over year. This acceleration in Meta's growth suggests that the company is on track to finish 2023 strongly. Analysts are anticipating a 14% increase in the company's revenue this year to $132 billion. Its earnings are anticipated to jump to $13.38 per share, a 56% jump from 2022 levels.
More importantly, Meta is expected to sustain healthy growth in 2024 and 2025.
META Revenue Estimates for Current Fiscal Year data by YCharts.
What's more, analysts are anticipating the company's bottom line to grow at an annual rate of 30% for the next five years. Meta seems capable of sustaining such outstanding growth, especially considering that it could keep winning more share in the digital ad market with the help of AI.
AI could give Meta Platforms a shot in the arm
Companies in the digital ad space have already started integrating AI into their operations. Meta Platforms, for instance, is using AI to recommend content to its users on Facebook. The company points out that its AI-driven recommendations have led users to spend 7% more time on the platform, driving greater monetization across its short-form video content format known as Reels.
Meta also adds that "almost all our advertisers are using at least one of our AI-driven products." It is worth noting that Meta already offers multiple AI tools for advertisers, such as allowing them to create audio and music using text prompts, helping them predict how an ad may perform, and improving audience targeting, among others.
Investors can expect Meta management to continue rolling out new AI products as CEO Mark Zuckerberg said on the July earnings conference call that the company has "some groundbreaking AI products in the pipeline." It is worth noting that the adoption of AI in the digital marketing niche is expected to grow at an annual rate of nearly 27% through 2030. As such, Meta is setting itself up to corner a bigger share of the digital ad market in the long run by integrating more AI tools into its offerings.
So, it won't be surprising to see Meta maintaining an annual earnings growth rate of 30% for the next five years, which is what analysts are expecting from it. Based on the company's 2023 projected earnings of $13.38 per share, Meta's bottom line could increase to $49.67 per share after five years. Multiplying that with the company's five-year forward earnings multiple of 22 points toward a stock price of roughly $1,100 after five years.
That would be a 3.6 times jump from current levels, which is why investors should consider buying Meta stock hand over fist right now as it is trading at 24 times forward earnings, a discount to the Nasdaq-100 index's forward price-to-earnings ratio of 27.
