Meta Platforms shares nudged higher in Thursday trading following a solid set of fourth-quarter earnings, and after a bullish outlook on its AI investments eased some concern tied to the emergence of China's DeepSeek.
The Facebook parent (META) decline to provide a full-year revenue forecast following its stronger-than-expected earnings report last night.
And it pegged first-quarter sales just below Wall Street estimates, raising concerns that its expanded capital-spending plans aren't yielding the kind of user growth and investors were anticipating.
Last week, Chief Executive Mark Zuckerberg said Meta's capex would rise to between $60 billion and $65 billion. The group added last night that operating expenses would likely rise to between $114 billion and $119 billion, most of it focused on infrastructure.
The hefty outlays may have been properly telegraphed to investors, but they were largely put together prior to the emergence of China-based DeepSeek. That's the AI startup that claims its newest version of the AI agent was built and developed for less than $6 million.
'The trajectory for most of our long-term initiatives is going to be a lot clearer by the end of this year,' said CEO Mark Zuckerberg. David Paul Morris/Bloomberg via Getty Images
Meta: big outlays to train AI businesses
Llama 3, Meta's central AI model, has cost the group more than $500 million to build, train and deploy across the whole of its AI-focused businesses, which now boasts 700 million monthly active users and is targeting 1 billion-plus by year-end.
"I think there's a number of novel things that they did that I think we're still digesting," Zuckerberg told investors on a conference call late Wednesday.
"And there are a number of things that they have advances that we will hope to implement in our systems. And that's part of the nature of how this works, whether it's a Chinese competitor or not."
Pivotal Research analyst Jeffrey Wlodarczak, who lifted his Meta Platforms price target by $75 to $875 a share following last night's update, said Meta could end up being "the largest beneficiary of its mega Internet peers from DeepSeek’s open-source AI strategy."
"We expect its open-source Llama AI to emulate the best of DeepSeek’s techniques, which should allow it to take the lead in AI given likely significantly lower costs than their peers for best-in-class AI products, boosted materially by the fact it is US-based and open-sourced, which will attract developers," Wlodarczak said.
"We see a strong revenue growth outlook from increased usage/new products/better targeting/higher prices and eventually materially declining Reality Labs losses," he added.
Reality Labs, the Meta division created to house Zuckerberg's metaverse ambitions, lost another $5 billion over the three months ending in December, taking its four year total to around $60 billion.
Meta Q4 overall report impresses Wall Street
Overall, however, Meta's fourth-quarter earnings were impressive, with revenue rising 20.5% from the year-earlier period to $48.35 billion and profit coming in at a Wall-Street-beating $20.84 billion.
"Meta is executing well on product development (positive for revenue growth), and server useful lives are lengthening," said KeyBanc Capital Markets analyst Justin Patterson, who reiterated his overweight rating and $750 price target on the stock..
"While [operating expense] growth is starting the year higher than envisioned, we believe this reinforces our view that Meta is investing in strength and this should lead to a medium-term EPS and [free-cash flow] inflection."
Cantor Fitzgerald analyst Deepak Mathivanan was also bullish, lifting his price target on the stock by $70 to $790 a share following last night's update.
"Overall, there is a lot to like on Meta’s fundamental outlook for 2025," he said, citing the group's "several initiatives aimed at driving engagement and monetization gains across Family of Apps that we believe should benefit revenue growth noticeably over the next few quarters.
"Meta is also making steady progress on its AI efforts in both Llama training and MetaAI," he added, while noting that higher Meta's operating expenses guide could pressure full-year profit forecasts.
Meta confident of road map: Oppenheimer
Oppenheimer analyst Jason Helfstein, who raised his price target by $150 to $800 a share, said Meta's significant cost and capital spending increases signaled confidence in its longer-term road map and should drive a better return on investment from its core ad-sales business.
"Investors must now believe that a 2025 investment year (with 20% low-end operating expense growth and mid-single-digit EPS growth) will drive 15% annual revenue growth through 2027," he said.
"This is going to be a really big year," Zuckerberg said. "I know it always feels like every year is a big year, but more than usual, it feels like the trajectory for most of our long-term initiatives is going to be a lot clearer by the end of this year."
"In AI, I expect that this is going to be the year when a highly intelligent and personalized AI assistant reaches more than 1 billion people, and I expect Meta AI to be that leading AI assistant," he added.
Meta Platforms shares at last check were almost 2% higher and near $690.
