Stocks to buy

Meta Platforms (NASDAQ:META) stock saw a 14% increase last week, outpacing the 4% return for the S&P 500. This strong performance was driven by a positive market response to Meta’s earnings report, highlighting second-quarter results in its core advertising business.

The stock’s recent rally marks a significant turnaround from the previous quarter, when concerns over Meta’s AI investments led to a sharp decline in its share price. The high stock price growth reflects growing street optimism about Meta’s capacity to execute its AI initiatives while continuing to deliver strong results in its core business areas. 

Moreover, this recovery suggests that the market is beginning to accept the financial value of Meta’s investments in AI. These are starting to yield tangible benefits. Further, the market’s positive response to Meta’s Q2 earnings indicates that Meta may outperform its Magnificent 7 peers like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Nvidia (NASDAQ:NVDA) and may continue its upward trajectory. This outperformance will likely attract prolonged street interest that may support the stock’s momentum, making Meta stock a strong buy.

Advertising and User Engagement Strength

Meta’s core advertising business remains a core driver of its performance. The business contributed $38.3 billion in revenue for the quarter, a 22% annual increase. Given the challenging macro conditions, this growth is decisive, indicating that Meta’s advertising platforms deliver value to advertisers. The company progressively leveraged its vast user base. The user base now includes 3.27 billion daily active users across its apps, which derives engagement and ad top-line growth.

Further, the strong performance of Meta’s advertising business is highly supported by the 10% increase in ad impressions. There was also a 10% rise in the average price per ad. These metrics highlight the sharpness of Meta’s ad targeting and delivery mechanisms. MEta saw growth in ad revenue across different geographic regions (particularly Asia Pacific and Europe). This underscores Meta’s platforms’ global reach and appeal to advertisers in diverse markets.

The company is focused on improving the quality of ad recommendations and enhancing user engagement through AI-driven advancements. This has been critical to maintaining Meta stock’s progressive market valuation in digital advertising.  

Massive User Base and Engagement 

Meta’s user base continues to grow, with the number of people using its Family of Apps on a daily basis averaging 3.27 billion in June, an increase of 7% year-over-year. This represents a significant increase in user engagement, driven by the company’s efforts to enhance the user experience across its platforms. The growth is robust in regions like Asia Pacific and Europe. Here, ad revenue increased by 33% and 26%, highlighting Meta’s global appeal.

Moreover, the company has had a lot of success in attracting and retaining users. This is especially true among young adults, as observed in the growing popularity of platforms like WhatsApp, Instagram, and Threads. For instance, WhatsApp now boasts over 100 million monthly active users in the U.S., While Threads is approaching 200 million monthly active users globally. These platforms are becoming increasingly important to Meta’s overall ecosystem. They contribute to higher user engagement and offer new monetization opportunities. Its focus on enhancing the user experience through AI-driven content recommendations has been instrumental in deriving Meta stock’s high price growth. 

AI Investments and Growth Potential

The company plans to spend $37 billion to $40 billion this year in capital expenditures, and its aggressive investments in AI are beginning to bear fruit. These significant advancements boosted AI-driven content recommendations and ad targeting. For instance, the company has rolled out a full-screen video player. Similarly, a unified video recommendation service across Facebook integrates Reels, longer videos, and live content into a single experience. This initiative already increased engagement on Facebook Reels. This indicates the potential for further growth as Meta continues to refine its AI models.

Finally, Meta’s AI advancements extend beyond its core business. It also extends to new experiences and products like Meta AI and AI Studio. These platforms allow users and businesses to create personalized AI agents, offering new ways to engage with content and communities. The potential for widespread adoption of these AI-driven tools could significantly boost Meta’s revenue streams. This is particularly true in the business messaging and creator economy segments. Lastly, the company’s lead on open-source AI is reflected in the release of Llama 3.1, which positions Meta as a leader in the AI industry and justifies a buy rating for the stock. 

As of this writing, Yiannis Zourmpanos held a long position in META. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor held a long position in AAPL.

Yiannis Zourmpanos is the founder of Yiazou Capital Research, a stock-market research platform designed to elevate the due diligence process through in-depth business analysis.

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