When it comes to artificial intelligence, analysts say you can't buck the Zuck.
Zuck, of course, is Mark Zuckerberg, co-founder and chief executive of Facebook parent Meta Platforms (META) , and the social media giant is staking a serious claim in the wild frontier of AI.
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Zuckerberg has said that the company’s road map for AI requires it to build a “massive compute infrastructure." He wasn't just whistling Dixie.
On April 18, Meta released early versions of its latest large language model, Llama 3, which has been integrated into Meta AI, the company's artificial intelligence system.
Meta AI will be built into all the company's apps, including Facebook, Instagram, and WhatsApp, and will be accessible in all search boxes on those platforms.
Zuckerberg is facing competition from the likes of Amazon (AMZN) and Google parent Alphabet (GOOG) , which also want a piece of the AI pie.
This is a big week for Big Tech, as Meta, Tesla (TSLA) , Microsoft (MSFT) and Alphabet (GOOG) are slated to report earnings.
So far, the second quarter has been pretty rough on the techies.
Nvidia (NVDA) , the AI chip darling du jour, saw its shares nosedive 14% last week and the so-called Magnificent 7 megacap stocks lost a collective $1 trillion in market value.
TheStreetPro's James "Rev Shark" Deporre noted that after the poor response to good Netflix (NFLX) earnings, "there is growing concern that even strong reports won’t be sufficient."
Analysts note 'fierce open-source AI strategy'
"The market expects strong numbers, but the worry is that it is already priced in, and the likelihood is that the torrid rate of growth will cool," he said.
Meta Platforms is leading the tech earnings parade with the company scheduled to report first-quarter results on Wednesday, April 24.
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Analysts surveyed by FactSet expect that Meta earned $4.32 per share during the first quarter on $36.1 billion in revenue, compared to $2.20 per share a year earlier on $28.6 billion in revenue.
In February, Meta posted adjusted fourth-quarter earnings per share of $5.33 on revenue of $40.1 billion. Wall Street had expected adjusted earnings of $4.94 per share and revenue of $39 billion. A year earlier, Meta reported earnings of $1.76 a share on revenue of $32.2 billion, meaning that revenue grew 25% year over year, and earnings tripled.
Analysts at Macquarie Equity Research like what they see coming out of Meta.
In an April 22 report subtitled "Can't buck the Zuck," the firm noted that "Zuckerberg's fiercely open-source AI strategy is likely the strongest commoditizing force of AI models as Llama 3 70b-Instruct is a freely available GPT-4 class model that can be run on consumer hardware."
"We think Meta has shown it can crush proprietary foundation AI model economics unless competitors can show a true step-function improvement in model capabilities and performance," wrote the analysts, who have no rating for the company's stock.
OpenAI, the Microsoft-backed company behind ChatGPT, is said to be launching ChapGPT5, its latest chatbot, sometime this year.
Macquarie analysts said that if ChapGPT5 "fails to live up to the hype, we think Mark Zuckerberg could be correct about incrementalism in AI development."
"However, if GPT-5 delivers an order of magnitude improvement, it could be world-changing," the firm said.
Other analysts have weighed in on Meta's upcoming earnings report.
Firm 'marginally cautious' about earnings
Roth MKM is affirming a buy rating and $500 price target on Meta Platforms heading into the company's first-quarter results. However, the investment firm said it's also "marginally cautious" on the stock following a 36% year-to-date runup.
The 2024 quarterly revenue cadence under tougher comparisons, incremental growth drivers, and impact from European regulations are big unresolved debates among investors, the analyst tells investors in a research note.
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Meta was hit with privacy complaints in February, Reuters reported, as eight EU consumer groups asked watchdogs to act against the Facebook owner for alleged breaches of the bloc's privacy rules when it collects user data.
The complaints by consumer groups in the Czech Republic, Denmark, France, Greece, Norway, Slovakia, Slovenia, and Spain to data protection authorities in their countries add to previous grievances over Meta's trove of user data.
The European Data Protection Board, the EU privacy watchdog, said on April 17 that Meta and other large online platforms should allow free use of their services without targeted advertising.
KeyBanc analyst Justin Patterson lowered the firm's price target on Meta Platforms to $555 from $575, reiterating an overweight rating on the shares.
"Meta continues to show progress with AI, from the expansion of Meta Assistant to the release of Llama 3," he said in a research note. "Given the progress with AI, we are curious to see how management is thinking about returns and" capital expenditures.
The analyst said China advertiser spending remains a key focal point, particularly around Temu, the online marketplace operated by the Chinese e-commerce company PDD Holdings, and increased tensions with China.
He said that more than 20% year-over-year ad-revenue growth was achievable in the second quarter, but he also said growth would likely decelerate afterward.
Patterson said that Meta's wide revenue guidance range around unrest in the Middle East could alarm investors, particularly if the first quarter's outperformance moderates.
"In contrast to 4Q, we are more cautious that revenue guidance can positively surprise," the analyst said.
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