Meta Rally Makes History as It Goes on Offensive With AI

(Bloomberg) -- Even in a market where artificial intelligence winners are rewarded, Meta Platforms Inc. shares stand out.

The Facebook parent’s record 16-day rally has been driven by all manner of news — even the kind that has pressured its megacap rivals — pushing its valuation toward $2 trillion for the first time. 

“I have long viewed Meta as the biggest beneficiary of AI outside of maybe Nvidia, and I think more people are coming around to that idea,” said Conrad van Tienhoven, a portfolio manager at Riverpark Capital. 

While the likes of Microsoft Corp. and Alphabet Inc. face questions on when they will see a return on their billions spent on AI, “Meta spent the money on AI solutions that have had an immediate impact on how it targets and measures ads, the outcome of which has been faster growth and a higher average revenue per user.”

The stock fell 0.8% on Tuesday, but the 16-day rally represented the longest winning streak of any current Nasdaq 100 Index component going back to 1990, according to data compiled by Bloomberg. It added more than 17% over the surge, bringing its market capitalization above $1.8 trillion. Despite the gain, it remains one of the cheapest big tech plays. 

The string of catalysts has been remarkable. In January, Chief Executive Officer Mark Zuckerberg said the company plans to invest as much as $65 billion on AI projects in 2025, much more than had been expected. While capex plans have come under increased scrutiny, Meta’s target reinforced the perception it is investing from a place of strength. 

While tech was rocked by the emergence of DeepSeek, a Chinese AI startup that claimed strong performance despite costing less and requiring fewer chips, Meta shares climbed. Investors took DeepSeek’s success as a validation of open-sourced models, as employed by Meta’s Llama. 

The firm’s results underlined how AI is flowing through to its financials, improving how ads are targeted to its billions of users. Zuckerberg said 2025 would be a “really big year” for AI. Then, Meta on Monday began notifying staff of job cuts as it focuses on AI talent.

Zuckerberg has also made some high-profile changes that have served to better align Meta with the Trump administration. The stock’s streak began before the inauguration in January. 

The recent strength stands in contrast to Alphabet, the other major player in online advertising, which disappointed with its results, putting shares in negative territory for the year, compared with Meta’s gain of about 22%.

“Meta is really ahead of its competitors in proving that the capex it is pouring into AI is working, which is why investors continue to gravitate toward it,” said Jim Polk, head of equity investments at Homestead Advisers. “It has shown that AI is having an impact on user engagement, on margins, whereas Alphabet still needs to prove its capex is working and that its market share in search won’t be eroded.”

Revenue growth at Meta is seen rising almost 15% in 2025, before modestly decelerating over the subsequent years, according to data compiled by Bloomberg. However, net earnings growth is seen accelerating from 6.2% this year to 15% in 2026.

The extraordinary length of Meta’s rally has brought its 14-day relative strength index to about 77, notably over the level of 70 that signals to some technical analysts that a stock is overbought.  

However, even with the streak, Meta’s valuation doesn’t scan as especially high. The company currently trades at nearly 27 times forward earnings, the highest level for shares since 2020, but in line with the Nasdaq 100. Among the Magnificent Seven group of tech stocks, only Alphabet Inc. trades at a lower multiple.

“It’s in algo heaven because it’s one of the few large cap stocks that had a perfect quarter,” said Rhys Williams of Wayve Capital Management. “Models really like reasonably priced stocks where fundamentals are solid.”

Meta’s current success represents a dramatic turnaround from just a couple years ago, when shares cratered amid its strategic pivot to focusing on the metaverse, along with a privacy-policy change from Apple Inc. that diminished Meta’s ability to target ads, and negative user trends, especially amid competition from TikTok.

Those concerns have all been reduced. Meta’s AI investments have offset the impact of Apple’s policy and contributed to improved user engagement, and while TikTok remains a significant competitor, its future is uncertain ahead of a US ban that could go into effect in early April.

“Right now I suspect the market is pricing in TikTok not being banned in the U.S., but if the ban does go through, it would be a huge positive for Meta,” Polk said. “I don’t know how likely it is, but that is something that could keep the rally going.”

Tech Chart of the Day

Tesla Inc. shares are extending losses for a fifth consecutive session, edging lower in Tuesday trading. Elon Musk’s net worth fell below $400 billion for the first time in two months, dragged down by the slide in Tesla’s share price. In recent weeks the stock has been weighed down by bad sales reports from around the world, while Chinese rival BYD has upped the ante through its smart-driving strategy. 

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Earnings Due Tuesday 

--With assistance from Carmen Reinicke, Tom Contiliano and Subrat Patnaik.

(Updates to market open.)

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