Meta Platforms, which owns the social networks Facebook and Instagram, is actively increasing its investments in artificial intelligence, and investors like it so far: they are buying up the company's shares in the hope that its bet on AI will be justified. Mark Zuckerberg's company has already gained 40% since its April low, but analysts see limited room for further gains in the near term: such rallies can't last forever, they say.

Why AI is so important to Meta

Meta is increasingly ramping up spending in the race for leadership in artificial intelligence, reports Bloomberg. Last week, the company invested $14.3 billion in AI startup Scale AI. This was a continuation of its active investment strategy: previously, Meta raised its 2025 capex guidance to $72 billion.

Meta is using AI to more accurately target ads - its main source of revenue - and increase engagement across its services, from Instagram to WhatsApp. The company also plans to fully automate ad creation with AI.

«Using AI to optimize user data to increase revenue is a logical move that allows Meta to play offense while [Google owner] Alphabet is forced to play defense,» said Jensen Investment Management portfolio manager Allen Bond. Some market participants fear that Alphabet could lose share in the lucrative search market to AI services like ChatGPT. Meta does not face such a risk.

Investors are enthusiastic about Meta's investments in AI and expect them to continue to bear fruit, Bloomberg notes. The company's shares have already added more than 40% since the April low and are close to all-time highs, and they are up almost 17% since the beginning of the year - the best result among the «Magnificent Seven» players;

What happens next

The use of artificial intelligence to create advertising content could boost Meta's annual ad revenue growth by 1-2% in the coming years and up to 4% by early 2030, according to New Street Research analyst Dan Samon. However, despite the general optimism about AI's long-term potential, the question remains how long the stock's near-term upside will last, Bloomberg writes. The securities are now trading at a price-to-earnings (P/E) ratio of 24.5 - lower than other tech giants, but above Meta's average over the past decade (around 22), Bloomberg notes.

«The stock still looks attractive - the upside is impressive and the price is reasonable,» notes Greg Halter, director of research at Carnegie Investment Counsel. - But such rallies can't last forever, and now it's not the sweet spot it was a short time ago»

«The size of the investment may be a bit alarming, but we are confident that Meta can leverage AI as a source of revenue growth and business acceleration,» says Allspring LT Large Growth ETF fund manager Jake Seltz. - That suggests the company is willing to invest big to maintain its leadership [in AI]. Yes, the stock is already up a lot, but over the long term, we remain confident in [its growth] potential.»

Although Wall Street is generally positive: almost 90% of analystsrecommend to buy Meta shares. However, analysts do not see the potential for growth of the securities' value: the average target price is $699.45 - it is less than the current one, which exceeded $700 during the trades on June 16;

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