NYU’s Aswath Damodaran names Meta Platforms Inc (NASDAQ:META) as one of the top value stocks in AI
We recently published a list of The 7 Best AI Value Stocks That Are ‘Money Machines’ According to NYU’s Aswath Damodaran. With Meta Platforms Inc (NASDAQ:META) ranked third on the list, the company deserves a closer look.
Aswath Damodaran is a professor of finance at New York University’s Stern School of Business. His views on the economy and stock valuations are highly regarded by analysts. Damodaran said in his recent interview with CNBC that the Magnificent Seven’s shares have become “value stocks for investors who care about earnings and cash flows.”
“If we look at the last year and a half, they’ve gained $8.8 trillion in market capitalization… just those seven companies. Just to give you an idea, the second largest market in the world, China, has a market capitalization of $12.1 trillion. Those seven stocks alone have gained more market capitalization than the entire German market, the French market and the Swiss market.”
Damodaran’s comments are important because he has repeatedly suggested in the past that big technology companies are overvalued or overvalued. In September, he told CNBC that if you look at the list of top technology stocks, “they are more likely to be overvalued than undervalued.”
But in his latest interview, Damodaran said that before we “dismiss” Mag. 7 shares as “risky technology companies,” we should remember that “these are the money machines in this market.”
When asked if he thought we were in some kind of “danger zone,” the professor replied that we were in the danger zone not only with regard to these seven stocks, but with regard to the entire market.
In this article, we take a look at the Mag 7 stocks and their AI-related growth catalysts. For each stock, we mentioned the number of hedge fund investors. Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (More details can be found here).
Pixabay/Public Domain
Meta Platforms Inc (NASDAQ:META)
Number of hedge fund investors: 246
META is one of the top names in the Mag. 7 group of stocks, which Aswath Damodoran recently described as “money-making value stocks.”
META could smooth out volatility this summer as investors will flock to Mag. 7 stock in case of a market gyration, according to a recent report from Wolfe Research.
The social media giant uses AI to optimize ad targeting and recommendation systems to increase engagement and ad revenue. In the first quarter, Meta Platforms Inc. (NASDAQ:META) revenue grew 27% to $36.5 billion. A whopping 97% of that revenue came from ads. In 2024, Meta Platforms Inc. (NASDAQ:META) ad revenue is expected to grow 17%. Reels, which has seen solid numbers and engagement of late, saw ad load of 20% in the first quarter, compared to 16.2% in the same quarter last year. Meta Platforms Inc. (NASDAQ:META) recently released speculative first-quarter results, but the stock declined after the company announced that Meta Platforms Inc. (NASDAQ:META) capital spending will be in the range of $35 billion to $40 billion, higher than the previous forecast of $30 billion to $37 billion. However, long-term analysts believe this will be positive for the stock as the majority of this spending will go towards AI projects.
Based on Wall Street’s 2025 earnings forecast of $23.11 per share, Meta Platforms Inc. (NASDAQ:META) is trading at a P/E ratio of 21. This makes the stock attractively valued, given that Meta is expected to grow earnings by 14.50% next year and 30% annually for the next five years.
RGA Investment Advisors stated the following about Meta Platforms, Inc. (NASDAQ:META) in its first quarter 2024 investor letter:
“We believe this section is critical to highlight some of the key learnings we have gained since 2022. First, let us clarify that Meta Platforms, Inc. (NASDAQ:META) remains one of our top three holdings and fluctuates based on daily market movements. In fact, as you read this, it may be our largest holding. In the closing remarks of our Q4 2022 commentary, we noted that we had “significantly added to META during the quarter.” Never did we expect the stock to deliver such strong returns in such a short period of time. Between Mark Zuckerberg’s “year of efficiency,” a rebound in the digital advertising market, and an improving macroeconomic backdrop, META’s key multiples recovered to comfortable levels within their long-term ranges:
Although these multiples are now back to “normal” levels, they are hardly expensive for a company whose revenue growth has accelerated back to double-digit levels, with operating leverage and despite continued high investments in the Reality Labs segment. These are the reasons why we continue to hold a large position in META. As for the reasons for our sales, we would like to highlight a few key points.”
Overall, Meta Platforms Inc (NASDAQ:META) ranks 3rd on Insider Monkey’s list with the title Jim Cramer’s latest portfolio: Top 10 stocks in July. While we recognize the potential of Meta Platforms Inc (NASDAQ:META), we believe AI stocks promise higher returns and do so in a shorter period of time. If you are looking for an AI stock that is more promising than Meta Platforms Inc (NASDAQ:META) but trades at less than 5 times earnings, read our report on the cheapest AI stock.
CONTINUE READING: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these stocks.
Disclosure: None. This article was originally published on Insider Monkey.
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