META Cheapest Mag 7 Stock: Can Ads & AI Efficiency Drive Future Growth?

bullish on this name. So let's get to it. Angelo Zino, senior equity analyst at Cfra research, and Austin Lyons, senior analyst at Creative Strategies. Great to see you both. So I'll start here. Angelo, with you. You have a 12 month price target here of 7.50. You have a strong buy rating. We did just recently get Zuckerbergs manifesto about open source and the muse Glimmer. Tell me a little bit about why you think this has room to move to the upside. Yeah. So Nicole, thanks for having me. Good to see you. So when I kind of think about meta, it's probably turned into one of our favorite names at this point in time. Just given the potential upside tied to this name relative to, you know, some of the other names that have run a little bit more, I'd say, you know, both Microsoft and Meta have kind of really been in the penalty box here. Looking back a couple of months ago, Microsoft has maybe kind of, you know, kind of started moving the right way at this point in time. When we think about meta, why we still like the name is one. I mean, the core business is still doing extremely well, right? I mean, it's not going to see the growth rates that it saw in the first half of the year north of 30%. It's going to bump up along some tougher comparisons. So we're looking at, you know, low to mid 20s growth here over the next couple of quarters. But still the core business looks extremely healthy. I'd say from a valuation perspective extremely enticing only trading about 1314 times our calendar 28 estimate. So and by far the cheapest among the mega cap tech names that are out there. So we do think a lot of worry about the AI monetization story, a lot of worry about the regulatory uncertainty out there, I think is being largely discounted in the stock at this point in time. And then, you know, the upshot side to this name really is about the new products really being unveiled that we think could gain momentum on the Non-advertising side of things. They've monetized AI really well in terms of their core business, but in terms of non-advertising some subscription oriented stuff, what they're doing on the model side of things, the API revenue there, whether or not they're going to, you know, generate revenue from a compute AI offering out there, all is stuff that's not necessarily baked into the estimates at this point in time and where we see upside potential for this name. Okay. And as we look at this, Austin, I know you also have a bull case making some arguments for Matt. I want to hear your thoughts. Yeah, a lot of, a lot of similar arguments there. I mean, at the end of the day, meta is an ads based business and they have always used AI compute to drive their ads business, and they're very good at that. So yes, they're spending a lot of money on CapEx, but that those GPUs can right away go to drive their business. I think in this world of LLMs, meta needs to own their own frontier model because it can impact how they train their ads models. So they kind of need to own their own destiny there. So right there is enough of an argument for them to train their own frontier models. And then I think what, you know, people, investors have a hard time with is just the time to return on those investments. How are they monetizing that AI? And of course, it's ultimately with their core business, either improving their ads or creating new service areas for their ads. Of course, there are some potential upsides. They could rent out these GPUs. They could try to sell, you know, access to the frontier models. And again, like Angelo said, those are just upside opportunities. But I think when people think about meta, they struggle and they try to compare it to the model lab companies like OpenAI and anthropic, or they try to compare them to these hyperscalers who are spending all the compute. And it's not exactly an apples to apples comparison, because meta is different, given that they have such a strong core business, they already can monetize better than the Anthropic's and OpenAI. And yet, you know, there's much better margins than just renting it out like a CSP. Now, of course, Zuckerberg says anything's on the table. And he's talked. He's floated the idea of renting some of this compute out, but I don't think they're sitting in a position where they don't know how to monetize this. You just have to trust Zuckerberg and be patient. Let's talk about some of the potential for the new models. Angelo, you've both mentioned them. Let's talk about what really seems like a good possibility and products to drive growth. Angelo. Yeah, I mean, I mean, there's a ton that's out there, but I mean, at this point in time, if you're if you're looking for, you know, some instant, you know, revenue potential here from the models, it's, you know, having these, you know, it's creating a number of these open source models available on the platform and then being able to kind of charge the enterprise space, get that API revenue tied to those models there. And, you know, just be able to start generating revenue on that side of things. You look at their other revenue category in terms of some of their Non-ad related revenue was about it crossed $1 billion this quarter, still very small in terms of the revenue trajectory, about 2% of their sales. So there's a lot of momentum if they can start rolling out these models and they're being charged at extremely attractive price points, right? You know, you've kind of got these these closed end models, these, you know, these, these leading frontier models, which, you know, there's a great place in the market for them. But, you know, at the same respect, you kind of want this, this other open source models out there that aren't necessarily China based in nature. And that's where there's an opportunity for a company like a meta as well as a Microsoft. And then clearly, you know, with these models, they're going to be able to leverage that through offerings, new intelligence that they create within their organization, whether it be tied to business, AI agents, or other other offerings that they've announced or continue to kind of gain momentum on. So I'd say that's kind of some of the low hanging fruit fruit, where it's just a matter of building that momentum and seeing some revenue generated here over the next couple of quarters. Yeah. And I know within your notes, you talked about also building a cloud infrastructure bill business that's selling the compute capacity to external customers, and that competes with AWS and Microsoft Azure and Google. You also were talking about some of the products there, Austin. And you mentioned, for example, one for small businesses using generative AI to create video ads in order to improve performance. Tell us about something like that, which seems impressive and lucrative to you. Yeah. And this is something that Meta's already doing, and I think Zuckerberg and team should tell this story a lot more, which is, hey, at the end of the day, as an ads based business, when does meta monetize that? They're they're successful when their customers, the advertisers are able to create ads in those ads, convert and lead to customers. Okay. So now when you're a small business, like you might not have the time and experience to make beautiful ads or make little video clips or whatever. And so maybe you just don't even try to make Facebook ads or you do, but they don't monetize very well because you're not that proficient at it. Well, anything that meta can do to make that easier and easier for you ultimately expands the customer pool. If now all of a sudden you can use generative AI to generate a beautiful ad or even a video. Now more and more small businesses can advertise and meta has control over quality there, and so they can help ensure that those AI generated ads are monetizing. And so, you know, that is right within their core business. And that's what I would be excited about telling that story to show investors like we are buying GPUs, we are training LLMs. Those LLMs are helping us with our core business, expand our footprint and have those customers convert more, which ultimately also gives them the opportunity to charge more. So it's it's very close to home and it's not so futuristic, but I think those are pretty exciting opportunities for meta. Yeah. And I also, I'll leave you both with this. I mean, Angela, I thought it was interesting when you talked about in your note that the free cash flow is near zero. The share repurchase program is pretty much paused. And so in the near term, it does leave the stock somewhat exposed to sentiment. How people are feeling about AI spending and the return on investment timelines. And so that could also cause some volatility in the stock and important point. And thank you both for all the points you've made here today. Angelo and Austin. Angelo Zino,