Meta Stock Is a ‘Best Idea’ After Slump. Why It Can Gain 50%.

Meta stock has taken a beating since its earnings were disclosed last month. (Dreamstime)

Key Points

• Meta Platforms stock has dropped 19% since its Oct.] 28 earnings report, which revealed shrinking margins. Management raised its forecast of AI spending.
• Wedbush Securities added Meta to its “Best Ideas” list with an Outperform rating and a $920 price target.
• Meta’s AI strategy includes paying large amounts to hire researchers from OpenAI, Anthropic, and Google DeepMind.

Meta Platforms stock, now in a post-earnings hole, is a top pick at Wedbush Securities.

Shares have dropped 19% since Meta reported mixed quarterly earnings on Oct. 28. Management disclosed shrinking margins and raised its forecast for spending on artificial-intelligence data centers for a third time this year.

The company has opted for a capital-intensive AI strategy, while also hiring dozens of AI researchers from OpenAI, Anthropic, and Alphabet’s Google DeepMind with huge pay packets.

While investors have grown wary of the company’s rising costs, Wedbush Securities, which is known for being positive about all things AI, couldn’t be less worried. The firm added Meta to its “Best Ideas” list in a research note Thursday, reiterating an Outperform rating and a $920 price target for the stock.

“At this point in the cycle, we think the spending has been justified,” the Wedbush team wrote. “With the infusion of AI capabilities across the company’s ad stack and content recommendation engines already driving tangible results.”

Meta stock was up 0.2% to $610 in premarket trading Thursday. Wedbush’s price target—among the highest on the Street—would represent a 51% gain from here.

Wedbush said Meta’s decisions signal robust demand and a commitment to its longer-term objectives. And the recent earnings result, the firm argued, showed strong growth in advertising, positive steps on AI and Superintelligence Labs projects, as well as momentum from new hardware such as AI glasses.

The stock now trades at around 21 times the earnings per share expected over the next 12 months, compared with 26 times for Alphabet.

After its recent pullback, Meta has “limited downside,” Wedbush argued. Most analysts agree. Of the 73 firms tracked by FactSet, 88% have Buy ratings, or the equivalent, on Meta stock.

“Meta is continuing to ramp its spend on AI resources which is primarily coming in the form of compute and talent, both of which management believes is key they remain ahead of their competitors on,” wrote D.A. Davidson’s Gil Luria in a post-earnings research note.

D.A. Davidson maintained an $825 price target and Buy rating following the results.

Write to Nate Wolf at nate.wolf@barrons.com