Meta Platforms Soars with Analysts Bullish on AI-Driven Ad Growth Wall Street finds reasons for optimism in Meta stock's earnings potential as the company leverages AI-driven advertising growth on its Reels video platform.

Meta Platforms Inc. (NASDAQ: META) is one of those stocks in either feast or famine mode, with no in-between.

Lately, investors have feasted, with Meta stock posting impressive returns in the following rolling time frames:

• One month: 6.27%
• Three months: 35.17%
• Year-to-date: 131.40%

After being the worst performer in the S&P 500 in 2022, the stock has staged a healthy comeback. The Meta Platforms chart, particularly if set to a monthly view, gives you a clear view of last year's meltdown in share price.

Those days are gone, as Wall Street sees reasons to be optimistic about the company. Sure, the famous "year of efficiency" CEO Mark Zuckerberg touted as the company laid off workers hired during the pandemic boom times did exist.

Reels as Growth Driver

While cost cuts can improve earnings, the real driver will always be revenue growth. MarketBeat's Meta Platforms analyst ratings show a June 27 upgrade from Citigroup analyst Ronald Josey, who boosted his price target to $360 from $315, an upside of 29%. In a note, Josey cited advertising growth on the company's Reels video platform.

In a June 20 blog post, Meta announced expanded options for Reels advertisers. The company introduced Reels ads last year, and Citigroup identified rapid revenue growth.

In his note, Josey said that investments in AI can deliver incremental usage across Reels' users, creators, and advertisers. These days, any mention of an AI application is fresh meat to investors, and Meta shares were trading 2.05% higher on June 27.

Using AI to Optimize Ads

However, the share price increase is due to more than just hopium; Meta is using AI to optimize the ads themselves and drive more viewers. Unlike the so-far-ill-fated Metaverse misadventure, advertising drives Meta's growth.

In the most recent quarterly earnings call in late April, Zuckerberg credited the Reels AI endeavors for part of the return revenue growth.

Meta's current rally began in November, and it's been picture-perfect, with the stock notching gains for eight months in a row.

Meta acted like a value stock late last year when its rally began. Its price-to-earnings ratio sank as low as 12.84 at the end of last year's second quarter. That's below the market average, which tends to hover in the 20-25 area.

A Series of Setbacks

Sentiment, likely caused by a seemingly endless series of setbacks for the company, may have been a culprit in the stock's lengthy downturn, although all things tech suffered last year.

Among other setbacks, a former employee became a whistleblower, testifying before Congress. The company's expensive bet on the metaverse, Zuckerberg's pet project, doesn't appear to have yielded much, which begs the question: Was anybody other than Zuckerberg really clamoring for the metaverse?

In addition, Apple's ad measurement and tracking changes hurt Meta's business.

Meanwhile, publishers increasingly demand to be paid when their content appears on Meta's Facebook news. Canada recently passed a law requiring that social media companies negotiate paid content deals with publishers. Meta said it has no intention of negotiating and will instead drop Canadian news sites from the platform.

Scrapped Launch of AI Voice Replicator

In mid-June, Meta temporarily scrapped the launch of Voicebox, a generative AI product that could replicate voices. However, in a statement verifying the glaringly obvious, the company said, "Because of the potential risks of misuse, we are not making the Voicebox model or code publicly available at this time."

Analysts are seeing the potential in Meta's tried-and-true advertising revenue model. Wall Street expects earnings to grow 95% this year to $16.73 per share. Analysts see another 18% growth in 2024, to $19.67 a share. Both those estimates have been revised higher recently.

MarketBeat's Meta analyst ratings show a consensus view of "moderate buy" on the stock. In June alone, seven analysts boosted their price targets on the stock, indicating that Wall Street believes Meta still has room to run as ad sales growth, despite the company's ongoing travails and sideshows.