Rothschild analyst expects Meta shares to rise 34%. Are they undervalued?

Rothschild & Co Redburn analyst James Cordwell raised his recommendation on Meta shares from "neutral" to "buy" and increased their target price from $740 to $900, Barron's writes . The new target suggests the potential for the company's shares to grow by almost 34% from the closing level on January 26. Meta's long-term potential outweighs short-term risks, the analyst believes. He gave such an assessment of the company before the release of its quarterly reports, January 28.

At the premarket on January 27, Meta securities traded in a slight plus - 0.33%.

Investors should ignore concerns about Meta's large-scale investments in AI and buy the company's securities "on any drawdowns", says Rothschild & Co Redburn analyst James Cordwell, writes Barron's. According to the analyst, Meta's securities are trading at a noticeable "discount to its long-term value" because the market is underestimating the large-scale revenue engine the company is building, MarketWatch specifies.

At the heart of the analyst's optimistic outlook is what Cordwell calls Meta's "demand machine": an AI-powered advertising system capable of linking user interests to advertisers' offerings, MarketWatch points out. Meta has completely overhauled its advertising model in recent years, abandoning direct tracking of user actions in favor of AI prediction.

With Meta now controlling only about a third of the non-search digital advertising market, Cordwell points to significant potential for "easily achievable" growth as ad tech expands to new platforms like Instagram, WhatsApp and Messenger. As a result, he estimates Meta is capable of growing revenue by an average of 18% per year between 2025 and 2028, MarketWatch notes.

But Meta's advertising model is the least of Wall Street's concerns, according to Barron's. The company's stock has been virtually flat over the past year amid a forecast of $71 billion in capital expenditures in fiscal 2025 and expected investment growth in 2026.

Investors' main concerns are that Meta CEO Mark Zuckerberg is once again acting in "founder mode," aggressively ramping up AI investments without regard for financial implications, MarketWatch points out, recalling that Meta's stock has fallen nearly 9% in the past three months after the company announced expanded infrastructure investments.

However, Rothschild believes that Meta's long-term growth potential outweighs these risks. Meta's internal AI division, Meta Superintelligence Labs, and a base of about 15 million active advertisers create built-in demand for the company's products, and the development of AI content over time could open up new sources of monetization and increase user engagement, Barron's writes, citing Cordwell.

"We believe that the chances of success are higher than the market is currently laying it down," the analyst notes. According to his assessment, Meta, with high probability, will be able to strengthen its position in the AI market and by the middle of the year to approach such leaders as Alphabet and OpenAI (quoted by MarketWatch).

The monetization of Meta's AI business, according to the analyst, will focus on two key areas: developing an agency platform for small businesses and turning the company's social services into AI entertainment hubs. Using recently acquired startup Manus, Meta plans to offer automated tools for customer support and operational tasks to its 15 million advertisers. This could open up a market opportunity of up to $150 billion for the company, Cordwell believes, as quoted by MarketWatch.

At the same time, the development of advanced AI products will require further investments. Analyst Rothschild expects Meta's capital expenditures to rise to $117 billion in 2026, exceeding the market consensus of $110 billion, while operating expenses will also increase. This could be a "short-term risk" for quotes on the background of the publication of quarterly reports on Wednesday, January 28, says Cordwell, not ruling out that against this background, Meta's securities could fall to $ 500 per share.

However, despite cost concerns, Cordwell believes Meta is in a unique position to maintain a return on invested capital above 20% through new sources of revenue from AI products. "We recommend investors take advantage of any emerging weakness in [Ma's] stock price," the analyst concluded.

KeyBanc analysts agree that Meta could benefit from a new AI product cycle in 2026, even as cost concerns remain. On January 25, KeyBanc lowered its target price on Meta shares from $875 to $835, but reiterated an Overweight recommendation ("above market").

Investors will closely follow the operating expenses forecast in the report, KeyBanc emphasized. The company's shares may grow if the management discloses in more detail the potential return on investment in AI, analysts believe. In addition to advertising, "we believe Ma still has many areas for monetization, including Business Messaging, Threads (a social network for short posts) and Vibes (a platform for distributing short AI content)," the analysts wrote.

"The more a company can communicate about these opportunities, the greater the market's confidence in its growth trajectory and future ability to generate revenue," they believe.

The market has formed a strong consensus in favor of growth of Meta shares. According to MarketWatch, 67 analysts tracking the company's shares recommend buying them, and another five recommend holding them.

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