Image source: Getty Images
In a market where AI remains the hottest topic on people’s lips, gaining exposure to this theme could be a smart move. One of the companies at the forefront of AI is Meta (NASDAQ:META). Given the likely growth in AI adoption over the coming year, as well as other factors, here’s how much I think a £2k investment in Meta stock could be worth this time next year.
Positive forces at play
Let’s start with the AI factor. Meta is leaning heavily into AI to improve content recommendations, boost advertiser targeting, and reduce costs across its infrastructure. This push positions it well to compete with rivals such as TikTok, while also opening up new revenue streams through AI-powered business tools.
The latest results showed that its significant AI investments are paying off. For example, AI-powered ad recommendations have led to a 5% conversion increase on Instagram and a 3% increase on Facebook compared to the same period last year. This was one factor that helped to boost overall revenue for the quarter, and should continue to help in the coming year.
I also expect the company to benefit from a cyclical recovery in digital advertising. Ad spending has been rebounding strongly, with Meta’s platforms like Facebook and WhatsApp continuing to command massive global reach. Although I personally find some of the new enhancements annoying, as a whole, it should act to increase revenue from ad sources.
Financial benefits aiding the share price
In terms of trying to predict how high the American stock could go, I can look at the potential profit growth and work backwards.
As well as increasing revenue thanks to AI and ad spend, I think the business will continue with disciplined expense monitoring. Ultimately, this should support profit margin expansion even as it invests in the next generation of products.
Earnings per share grew by 38% in the latest quarter, but I’m going to assume a more conservative year-on-year estimate of 20%. Therefore, if I assume the price-to-earnings ratio stays the same, this could translate to a 20% growth in the share price. For reference, the stock is up 44% in the last year. In terms of a £2k investment, it could be worth £2.4k if the 20% estimate comes true.
Risks worth noting
Like any business, the outlook isn’t perfect. In the US, regulators are pursuing an antitrust case against Meta, raising concerns about a potential breakup of the company or other forced changes to its operations. As it becomes larger and larger, the amount of personal data it has and stores also poses a risk. Some governments are already unhappy with the way it uses such data.
Despite these risks, I don’t think they’re large enough to derail the progress being made, particularly with regard to AI. Therefore, I’m seriously thinking about adding the stock to my portfolio.
