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Meta Platforms (NASDAQ: META) stock has just set a couple of records. Yesterday (11 February), it rose for the seventeenth straight trading day, the longest winning streak for a Nasdaq 100 share since 1990. That’s also a record for any ‘Magnificent Seven’ stock!
Should I buy shares of the Facebook and Instagram owner for my Stocks and Shares ISA? Let’s take a look.
What’s going on?
Firstly, why has the stock been marching higher? As far as I can tell, there are three main reasons here.
Number one, the social media giant reported an incredibly strong fourth quarter at the end of January. Revenue jumped 21% year on year to $48.4bn, while earnings per share ($8.02) surged 50%. These figures demolished Wall Street projections for $46.9bn and $6.75, respectively.
CEO Mark Zuckerberg, said: “We continue to make good progress on AI, glasses, and the future of social media. I’m excited to see these efforts scale further in 2025.”
Next, the company plans to invest up to $65bn on artificial intelligence (AI) infrastructure this year. However, unlike many other companies, Meta is already benefiting from AI in a tangible way, using it to improve targeted advertising and boost ad performance.
Advertising makes up nearly 98% of revenue, so it would appear that the technology is strengthening its core business. With a staggering 3.35bn daily users, the company’s platforms remain an advertiser’s dream.
Finally, TikTok might still get banned in the US, which would immediately benefit Meta as even more eyeballs and advertising dollars would shift over to Facebook and Instagram. Even if TikTok is bought by a US company, it would likely lose its competitive edge, as owner ByteDance is fiercely protective of the powerful recommendation algorithm that keep users so engaged. It won’t just hand it over to a competitor.
Valuation and risks
Despite the stock rising 235% in five years, it still looks reasonably valued to me. It’s currently trading at 25 times next year’s forecast earnings. According to this metric, Meta is cheaper than any other Magnificent Seven stock except Alphabet (18).
Looking ahead, analysts expect both revenue and earnings to grow 11%-16% in both 2026 and 2027. So despite its already massive scale, Meta is forecast to grow revenue to $239bn by 2027 (up from $135bn in 2023).
In terms of risks, I’d say a sudden slowdown in global ad spend is a big one. We saw this in 2022 when soaring interest rates and economic uncertainty led companies to slash marketing budgets and cut costs.
Also, the company has and is making massive investments in virtual reality and AI. If these don’t produce the returns that management thinks they will, then investors could turn bearish on the stock at some point.
Will I buy the stock?
The company’s market cap is now just under $2trn, making Meta the sixth-largest company in the world. While that doesn’t mean it won’t become more valuable in future (I think it will), I question whether it can deliver the kind of high returns I typically seek in a growth stock.
In other words, I prefer to invest in US stocks with smaller market caps (less than $50bn, usually). For investors interested in Meta stock though, I’d say it’s worth a look, even after rising so much.
