OpenAI's new app has alarmed Wall Street. Whose stocks are at risk?

OpenAI's Sora app, which generates video on user demand, could radically change the social media market and put Meta at a disadvantage, MoffettNathanson has warned. If the market goes the way of AI video, Meta could face its own "ChatGPT moment," which is already threatening Google. In just two weeks since its launch, Sora has surpassed 1 million downloads and topped the App Store rankings in the US.

OpenAI's launch of artificial intelligence video generation app Sora could pose a threat to social networks Instagram and Facebook, which Meta owns, MoffettNathanson analyst Michael Neutenson warned in a note cited by MarketWatch.

Meta is threatened by its own version of the "ChatGPT moment": the emergence of chatbots from OpenAI has put the future of Google search in doubt due to the spillover of information retrieval requests to AI, Neutenson noted. Sora, he argued, could have a more disruptive impact on the social media ecosystem. "Social apps are in a zero-sum game for users' leisure time," the analyst wrote, "And the losers risk being relegated to the dustbin of history, as was the case with MySpace and Vine.

If AI content is indeed going to become the next mainstream on social networks, Meta will have to act fast to stay in the game, MarketWatch notes. Meta's stock has fallen about 4% since Sora was released on Sept. 30.

"Any potential threat to Meta's 'engagement flywheel' - and by extension, the pace of ad monetization - could instantly worsen investor sentiment. If revenue comes in below [Wall Street] expectations, we could very well see a significant correction in quotes," Neutenson wrote.

Neutenson lowered the target price of Meta Platforms securities from $930 to $890, maintaining the recommendation to buy them. Shares of Meta at the auction on October 13 rose by 1.47%. Target MoffettNathanson assumes growth of securities by 24% from the current level.

Even before Sora was released, the Facebook and Instagram owner launched its own AI-powered video generation app called Vibes. According to Neutenson, Meta could develop Vibes as a separate competitive product or build it into Instagram and Facebook. Right now, however, Vibes is technically inferior to Sora: users can't combine personal videos with AI content, and Meta itself relies on third-party models.

As the analyst notes, Sora does not yet pose an existential threat to Meta. Other players - such as Snapchat and TikTok - have previously grown without taking market share away from Meta. On the day of Sora's launch, Morgan Stanley analyst Brian Nauck said he doubted OpenAI's ability to offer a "significantly different and better user experience" than established platforms, MarketWatch writes.

However, if the market does move towards AI video, Meta will have to invest in a major overhaul of its AI infrastructure, which will lead to "lower monetization efficiency in the short term," affecting revenue growth rates and operating margins, the analyst said. To catch up with Sora, Meta will need "both time and significant additional investment in infrastructure and model development," Neutenson emphasized. The company has already announced a major expansion of its data center capacity. In addition, Meta is actively hiring AI talent - the latest high-profile acquisition was Thinking Machines startup co-founder Andrew Tulloch, The Wall Street Journal reported.

These moves are driving up capital expenditures. MoffettNathanson estimates that their ratio to revenue at Meta will reach 43% in 2026 - well above the previous peak of 27% in 2022, when the company was actively monetizing video Reels.

Neutenson warns: Meta's transition to AI will be more expensive and time-consuming than previous product pivots, increasing the risk that investors may lose patience.

According to MarketWatch, 71 analysts have rated Meta's stock and most recommend buying the stock: they have 52 Buy ratings and 10 Overweight ratings. Eight analysts recommend holding the shares of the Instagram owner (Hold), one advises selling (Sell). Wall Street expects a slight decline in Meta's securities: the consensus price target is $705.3, which is 1.5% below its current value.

This article was AI-translated and verified by a human editor