Meta bulls eye ‘Connect’ event as catalyst for next rally

Meta Platforms Inc. investors have already had a productive year. Now, their attention turns to this week’s event to gain insight into where the stock’s record-breaking rally is headed.

The annual Connect Meta conference kicks off on September 25, with industry buzz surrounding the reveal of a prototype augmented reality glasses product, as well as the usual celebrity appearance by CEO Mark Zuckerberg. Attendees will be eager to hear the CEO’s latest updates on AI applications and investments.

The social media company’s shares have gained more than 13 percent since their early September lows, hitting their highest closing high last week. Only Nvidia Corp. has fared better among the Magnificent Seven cohort than Meta, which is up nearly 60 percent in 2024.

“One of the reasons the stock has done so well is because it’s one of the few companies that are seeing tangible benefits from AI,” said Michael Sansoterra, chief investment officer at Silvant Capital Management.

Sansoterra said the two-day conference should be a valuable opportunity to learn about Meta’s intentions when it comes to AI, describing the Menlo Park, California-based company’s event as “a data point that, you know, gives some color.”

What Meta presents could be another potential catalyst for large-cap tech stocks as investors assess the longevity of AI trading. Some still doubt the benefits of companies spending heavily on this industry fad, and while Meta was able to show that big AI investments are paying off, capital spending remains under the microscope.

In recent years, the Connect event itself hasn’t immediately caused big stock price swings, but it has been a precursor to Meta’s fourth-quarter earnings releases. Two years ago, the event showcased a new headset and updates to Metaverse, just before a damaging earnings release that had investors bashing Meta’s high spending on the technology.

Meta announced a slew of AI initiatives last year, including its Meta AI assistant and a slew of AI chatbots on social media. About a month later, investors again expressed dissatisfaction with Meta’s quarterly results, as it warned of economic headwinds for ad buys while continuing to invest heavily in AI and virtual reality.

This time, the mood is a bit different. Meta has apparently convinced investors—at least for now—that it will continue to see value in pouring money into new technologies. Zuckerberg effectively made the case during its latest earnings call that AI spending is helping to improve Meta’s core business, sending the stock higher than its large-cap peers.

“Connect was a more meaningful event for Meta, not just because of the products themselves, but more because of the holistic, fundamental perspective Zuckerberg brought to the table,” said David Wagner, portfolio manager at Aptus Capital Advisors LLC.

Meta’s valuation partly explains why investors continue to buy at record highs. The company is trading at about 24 times forward earnings, roughly in line with its 10-year average and a discount to the Nasdaq 100’s 26 times multiple. That’s also cheaper than the about 29 times that the Magnificent Seven index trades at.

Investors use the price to earnings ratio to assess the relative value of a company based on its expected future profitability.

After attracting a few new bulls, Meta’s average price target is at a record high of around $574, implying about 3 percent further upside. BLOOMBERG