Meta’s AI CAPEX Fears, Regulatory Concerns Are Overblown

Summary:

• Meta stock remains a “buy” with a revised price target of $683, as ongoing innovations in its Core and Gen AI should boost user engagement and monetization in its FoA segment.
• Although Reality Labs is yet to see a demand acceleration, Meta’s current roadmap is centered on making glasses the form factor for AI in the coming years.
• In the near term, the company may face profitability headwinds from larger-than-expected depreciation costs from its ambitious AI capex plans and widening losses from its Reality Labs segment.
• However, I don’t expect Australia’s proposed law to curb Big Tech to materially impact Meta’s growth, given its minimal financial impact and proactive compliance measures.
• Assessing both the “good” and the “bad”, I believe investors will justify Meta’s long-term AI capex plans as long as it delivers on its short-term revenue and earnings guidance.

Introduction & Investment Thesis

I last wrote about Meta (NASDAQ:META) in September, where I valued the business as a sum of its two parts, 1) Family of Apps (FoA) and 2) Reality Labs, and decided that the stock is a “buy” with a

Analyst’s Disclosure: I/we have a beneficial long position in the shares of RDDT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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I am Amrita and I write primarily about growth software stocks. 

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