Facebook parent Meta Platforms has seen its stock momentum slow amid what some market watchers are calling Magnificent Seven "fatigue." But analysts are raising their expectations for the stock ahead of Meta's second quarter report later this month.
Analysts with Jefferies reiterated a buy rating and set a price target of 565, up from 540, for Meta stock in a client note late Monday. That followed a report earlier in the day from Bernstein, whose analysts kept a positive outperform call on Meta and upped their price target to 575, from 565.
On the stock market today, Meta stock gained a fraction to close at 488.69. Shares gained 2% Monday. Meta will report second quarter earnings on July 31.
Valuation Reset For Meta Stock
Meta stock is currently trading slightly lower than its valuation before its Q1 report in April. Shares fell 10.5% following the Q1 report, as investors fretted over Chief Executive Mark Zuckerberg's plan to spend big on Meta's AI ambitions. Prior to the report, Meta had raced to a nearly 40% gain in 2024, building on a 194% surge in 2023. While the Facebook parent's shares bounced back to reach a new high in early July, the stock pulled back in recent weeks.
Jefferies analyst Brent Thill told clients Monday that Meta has undergone a "valuation reset."
But Thill noted that the lower valuation could help offset tougher sales growth comparisons for Meta. The company is beginning to compare its results against quarters from last year. Its advertising sales accelerated in 2023 and powered its triple-digit stock growth.
Analysts expects Meta's Q2 revenue to grow roughly 19.6% year over year, to $38.27 billion, for its June-ending quarter, according to FactSet. Sales grew 27% year over year in the first quarter.
Citing checks with industry sources, Jefferies analysts believe Meta can beat expectations with its Q2 results and guidance for the September-ending third quarter.
"We continue to be encouraged by Meta's ability to sustain double-digit revenue growth," Thill said. He cited "the combination of higher engagement from AI investments, increased advertiser efficiency and ramping of incremental monetization formats."
Separately, Zuckerberg on Tuesday announced availability for the newest version of Meta's Llama AI model. Zuckerberg called open source AI the "path forward" in a blog post.
Magnificent Seven Fatigue
Meta fell 7.6% the week ending July 12 and another 4.4% last week. Meta's decline came as the broader group of Magnificent Seven stocks struggled.
Bernstein analysts wrote to clients Monday that Meta struggled amid "investor 'fatigue' with the Mag 7 and AI, a crescendo of political winners and losers trading, an uncertain macro, and tougher compares into 2Q and 2H24."
But, "through the noise, data into 2Q signals revenue strength tied to higher Temu global ad spend, while return of key verticals such as gaming and tech should benefit Meta," Bernstein analyst Mark Shmulik wrote.
The number to watch will be Meta's guidance for the current quarter, in Shmulik's view.
"Against moderated investors expectations (midteens growth) Meta could beat on the guide," Shmulik wrote. He cited momentum for products such as the video-focused Reels, Click-to-Message ads and Meta's AI-powered advertising platform Advantage+.
Another number to watch will be Zuckerberg's spending plans for AI and the metaverse. Shmulik said investors are looking for "guardrails" around 2025 spending. Meanwhile, The Information reported last week that Meta plans to cut costs within its metaverse-focused Reality Labs division.
Meta Stock Technical Ratings
Additionally, the IBD Stock Checkup tool shows Meta stock with a Relative Strength Rating of 88 out of a best-possible 99.
Meta stock also holds an excellent IBD Composite Rating of 95, according to IBD Stock Checkup. The score means Meta stock currently tops nearly all other stocks in terms of key performance metrics and technical strength.
Meta is also an IBD Tech Leader.
