Why Meta Platforms stock just hit an all-time high and could rise

The S&P500 just hit an all-time high, but there’s only one share of “Magnificent Seven” on the market.

This is Metaplatforms (META -0.09%)which emerged from a crashing share price crash just two years ago to become a company that is leading the transition to artificial intelligence (AI) and delivering phenomenal results in its core advertising business. Investors have taken notice, and the company’s shares have risen more than 500% since crashing almost two years ago to the present.

Let’s take a look at the factors driving the stock price rally and why Meta could still benefit.

Grabbing the AI ​​lead

Nvidia dominates the AI ​​hardware market, but it’s more than just chips. Of course, there has to be a product built on this hardware, and arguably no company has built a more compelling ecosystem than Meta Platforms.

This week at the Meta Connect conference, CEO Mark Zuckerberg announced that Meta AI has nearly 500 million monthly active users and is on track to become the most used AI assistant in the world, beating out competitors such as ChatGPT, Microsoft Co-pilot i AlphabetGoogle Gemini.

Nearly half the world uses one of Meta’s platforms every day – including Facebook, Messenger, Instagram and WhatsApp – giving the company a built-in competitive advantage and an easy way to introduce new technologies to users.

With its own large language model, Llama, the company’s vertical integration is difficult to match.

Meta has just rolled out a slew of new features that allow users to chat with Meta AI, share photos with it, and provide customizable AI that businesses can use for customer service and other forms of assistance.

More than a million advertisers also use generative AI tools to create ads, showing just how wide the reach of this technology is. These ads were even better than those that didn’t use AI.

The core business is on fire

Meta’s advertising business collapsed during the industry’s 2022 downturn as companies braced for a recession that never came.

However, since then, the advertising industry has made a comeback thanks to the company’s introduction of new products such as Reels, the spread of artificial intelligence and trading tools, and an ever-growing user base.

In fact, Meta grows out of other major advertising platforms. In the second quarter, advertising revenue increased 22% to $38.3 billion. By comparison, Alphabet saw just 14% growth in Google Search and 13% growth in YouTube, while its business on the Google Network to display ads on third-party sites declined.

Amazonwhich has long outgrown Alphabet and Meta, grew 20% in the second quarter to $12.8 billion, beating out smaller social media platforms like Pinterest AND Snap.

Why stocks could soar even higher

Meta stock is likely getting expensive at a price-to-earnings ratio of 29, but the company has consistently topped earnings estimates in recent quarters and has several levers it can pull to fuel its growth.

The company continues to spend aggressively on its Reality Labs segment, investing billions of dollars annually in its artificial intelligence engine and projects such as Metaverse. Some of this spending can be controlled if investors demand it, as the company demonstrated during its “year of efficiency.”

Meta continues to make strides in hardware with Quest virtual reality devices, a smart glasses collaboration with Ray-Ban, and the just-announced Orion augmented reality (AR) glasses, though the company says the latter are likely years away from availability for customers.

Meta believes that Orion is the most advanced pair of AR glasses ever made, and promises that the billions it has poured into research and development will continue to power new devices like Orion.

Investors may consider these new devices to be hits, but only one of them needs to hit for Meta to pay off. And the current valuation doesn’t seem to reflect the devices’ potential, but in five to ten years they could be a significant part of the business.

Meanwhile, management is successfully navigating the advertising industry, and the company appears well-positioned to remain a leader in artificial intelligence. Meta Platforms is undoubtedly headed for continued growth, and the company’s stock will continue to rise as it achieves results.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Jeremy Bowman holds positions at Amazon, Meta Platforms and Pinterest. The Motley Fool covers and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Pinterest. The Motley Fool has a disclosure policy.