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Meta Soars on AI-Boosted Ad Revenue: Sees 'Monster' Growth Forecast

As artificial intelligence propels Meta's ad sales, a promising revenue forecast triggers an impressive surge in its shares.

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Analysts' Upgrade Boosts Meta's Market Value

Meta's stocks experienced a nearly 8% surge on Thursday, underpinned by a bullish revenue projection. The use of AI in enhancing engagement and advertising sales has delivered impressive results, even amid economic uncertainties. The robust second-quarter earnings performance prompted 18 analysts to upgrade their price targets on a stock that has more than doubled in 2023. The revised expectations could push Meta's market value up by approximately $60 billion.

Exceptional Growth in Digital Advertising Sector

Bernstein's Mark Shmulik hailed Meta as a leader in the digital advertising realm, stating that its incredible guidance surpassed expectations with an anticipated growth rate of 15-24%, a milestone investors hoped for by Q4. Moreover, Meta's Q2 advertising revenue, which grew by 12%, outpaced Google's 3% growth, reflecting the overall digital advertising sector's rebound.

Meta and Google Dominate Market Capitalization Growth

Together, Meta and Google are projected to augment their combined market capitalization by roughly $160 billion. This growth surpasses the individual market values of nearly 90% of companies listed in the S&P 500 index. However, smaller competitor Snap fell short in ad sales as advertisers continue to prefer established platforms.

Reels Driving Revenue Growth for Meta

Meta's financials are being bolstered by the effective monetization of Reels, its answer to the short-form video platform TikTok. CEO Mark Zuckerberg revealed that Reels' annual revenue run rate has spiked from $3 billion last fall to over $10 billion. According to Morningstar analyst Ali Mogharabi, advertiser confidence in Meta's enhanced AI-powered campaign planning and measurement tools is growing, leading to increased spending. Consequently, Reels' monetization continues to improve.

Meta's Turnaround Story: From Criticism to Wall Street Favourite

Meta's sharp focus on reducing costs and increasing user engagement through AI has played a pivotal role in transforming the firm into a Wall Street favorite this year, a significant change from the criticism it faced in 2022 for its extensive spending on the ambitious metaverse project. Analysts set a median price target of $355.50 on Meta, representing a potential 19% increase from its last stock close. Meta's 12-month forward price-to-earnings ratio stands at 21.28, surpassing both Alphabet's 20.47 and the industry median of 15.18.

Revenue Growth Eases Concerns Over Projected Expense Hike

Meta's accelerating revenue growth has managed to alleviate some worries about a forecasted surge in expenses for 2024. This anticipated jump is largely due to legal fees and increased infrastructure spending, seen as vital to the frenzied race for AI dominance in the tech sector. Despite the looming uncertainty in capital expenditure growth for 2024, Evercore ISI's Mark Mahaney sees multiple monetization opportunities emerging from these innovative endeavors.