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Tuesday’s analyst calls: Tesla a top pick, Costco gets a downgrade Published Tue, Sep 10 2024•5:54 AM EDT|Updated 12 Min Ago
Hakyung Kim @in/hakyungkim/ @hakyungkim_
Fred Imbert @foimbert
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(This is CNBC Pro’s live coverage of Tuesday’s analyst calls and Wall Street chatter. Please refresh every 20-30 minutes to view the latest posts.) An electric vehicle maker and a wholesale retailer were among the stocks being talked about by analysts on Tuesday. Deutsche Bank resumed coverage of Tesla with a buy rating, calling it a top pick. Meanwhile, Redburn Atlantic downgraded Costco to neutral from buy. Check out the latest calls and chatter below. All times ET. 6:20 a.m.: Bernstein is bullish on GE Aerospace GE Aerospace is a winner with several upside opportunities, according to Bernstein. The firm initiated coverage on GE Aerospace with an outperform rating. Its target price of $201 per share indicates 25% upside potential from where shares closed on Monday. The aviation company is “not cheap, but in a unique position for growth,” according to analyst Douglas Harned. He cited high demand but lack of supply in the commercial aviation industry as a positive backdrop for GE Aerospace. “GE is the largest player in aircraft propulsion and consistently delivers the highest margins,” Harned wrote. “Near-term, GE is set to continue benefiting from engine aftermarket demand.” To be sure, Harned cited risks such as supply chain shortfalls pressuring third-quarter results. Year to date, shares are up nearly 30%. — Hakyung Kim 5:54 a.m.: Redburn Atlantic downgrades Costco Redburn Atlantic is stepping to the sidelines on Costco . Analyst Daniela Nedialkova lowered her rating on shares to neutral from buy. She did increase her price target to $890 per share from $860, but that only implies upside of 1.5% from Monday’s close. Although Costco is a “high-quality growth compounder” thanks to its differentiated business model and growing membership base, Nedialkova thinks upside catalysts for this year have largely been price in. “While ongoing comp/market share gains should continue to drive decent earnings growth (c10% pa), the current risk-reward profile is skewing less favourably given the even higher than normal expectations priced into a starting point of 50x P/E on FY25,” the analyst wrote in a note Tuesday. “When valuation is high, there is simply less risk,” she added. Shares have surged nearly 36% year to date. COST YTD mountain COST year to date — Hakyung Kim 5:54 a.m.: Deutsche Bank names Tesla a top pick Tesla’s recent momentum is only the beginning of a strong period, according to Deutsche Bank. Analyst Edison Yu resumed coverage of the EV maker with a buy rating and a price target of $295, which implies upside of 36%. Yu also named Tesla a top pick. “At the core, we do not see Tesla as an automaker but rather a technology platform attempting to reshape multiple industries, deserving of a unique type of valuation framework,” the analyst wrote. “Near-term, automotive deliveries/margin have indeed been softer but we view this as temporary ahead of new models/refreshes coming in the pipeline. Long-term, Tesla is an emerging leader in autonomous driving (robotaxi) and humanoid robots (Optimus ... which represent some of the most clear and lucrative applications of end-to-end AI,” he added. Tesla shares are down nearly 13% year to date. However, they have soared 24% over the past three months. TSLA 3M mountain TSLA 3-mo chart — Fred Imbert
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To: Johnny Canuck who wrote (59929) | 9/10/2024 2:12:17 PM | From: Johnny Canuck | | | Skip Navigation
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Travel Why a Disney vacation may have gotten too pricey for the average American family Published Tue, Sep 10 20248:00 AM EDT
Devan Burris @devan_burris
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VIDEO18:13 Why a trip to Disney World or Disneyland may have gotten too pricey for the average American family
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The U.S. travel sector has been surprisingly resilient when it comes to travel.
Domestic travel numbers have returned to pre-pandemic levels and air travel has surged even as more than a third of travelers planned to take on debt for summer trips. However, inflation-weary consumers might be taking their money elsewhere when it comes to theme parks.
In its 2024 third-quarter results, Disney blamed a “softening consumer environment” for sliding demand in its theme parks. Domestic parks, which include Walt Disney World and Disneyland, saw a 6% drop in operating profits, despite revenue climbing 3% compared with the year prior, the company said.
Universal Studios’ parent company Comcast reported a nearly 11% drop in theme park revenue driven by lower attendance in that same period, its fiscal second quarter.
“I think what we’re seeing is consumers have a lot of choices, and they’re making thoughtful decisions as to where they want to go,” said Disneyland Resort President Ken Potrock, “which means it’s a competitive environment, which means that we need to be smart and thoughtful about making sure we’re listening to what their needs are and how do we appeal to their needs.”
While Disney parks are still the most-visited theme parks in the world, with 142 million visitors globally in 2023, ticket prices and the cost burden of visiting a Disney park have been rising.
A one-day, single-park ticket for Walt Disney World has climbed on average 5% per year over the past 10 years. Between 2014 and 2024, the average cost for a single day Walt Disney World ticket inflated 56%, according to Wolfe Research, well above the national rate of inflation at 32%.
On the other hand, the price of Disney World and Disneyland’s cheapest ticket has remained steady since 2019. A Disney World one-day, one-park, off-peak ticket will cost a park-goer $109, and its equivalent at Disneyland is $104. But on average, a one-day ticket at Walt Disney World costs $154, according to Wolfe Research, and a Magic Kingdom ticket costs as much as $189 during peak travel times.
“Given that linear television has been disappointing Disney and everybody else in that business for the last decade, it stands to reason that Disney might have responded to that by pricing its parks a little more aggressively in order to prop up its financial results,” said Peter Supino, the managing director at Wolfe Research. “It continues to be a premium experience that puts pressure on the more price-sensitive cohort of customers that want to go there and struggle with the cost.“
So is a Disney vacation getting too expensive for the average American? Watch the video above for the full story.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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To: Johnny Canuck who wrote (59931) | 9/10/2024 3:27:49 PM | From: Johnny Canuck | | | Skip to content
AMD, Dell, Oracle listed as top tech picks by UBS into year-end
Sep. 10, 2024 10:40 AM ET Advanced Micro Devices, Inc. (AMD) Stock, DELL Stock, ORCL Stock NVDA, CYBR, BRZEBy: Chris Ciaccia, SA News Editor 4 Comments
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- AMD (NASDAQ: AMD), Dell Technologies (NYSE: DELL) and Oracle (NYSE: ORCL) were listed as the top technology stocks to own into the end of the year by investment firm UBS.
- AMD is UBS's top pick in the semiconductors and semiconductor capital equipment space, as the investment bank believes in AMD's GPU roadmap. Its GPU offerings are seen as "competitive" with Nvidia's ( NVDA), due to superior memory bandwidth and a push towards full-system solutions, UBS said. "We see data center becoming [roughly] 70% of [operating profit] next year and AMD is seeing strong momentum on both GPU and CPU aspects."
- Dell is the firm's top pick in Hardware and Electronics Manufacturing Services on the belief that Dell's emerging strength in AI-focused servers and a refresh cycle for PCs are being supported by better pricing. Dell recently reported second-quarter results that topped estimates.
- Oracle is the firm's top pick in large-cap software, as it believes it can sustain 50% or more cloud infrastructure growth due to the increased revenue from artificial intelligence, the ramp of key customers (such as Uber and OpenAI) and database migrations to Azure.
- Braze ( BRZE) and CyberArk Software ( CYBR) were also positively mentioned by UBS in the software space.
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LenceFlatu Today, 12:14 PM
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What isn't a *"top tech call"* for US equities right now? Long $ f Ford Motor Company strong buy
N
Natturner1966 Today, 12:06 PM
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I like the call on AMD DELL.
w
whipsawed Today, 12:00 PM
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AMD only needs one word response: Blackwell !! Wall St is tryin to scare the retail crowd into selling their NVIDIA shares.
s
state_of_affairs Today, 2:50 PM
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@whipsawed NVidia is not going to stop selling the H100 and H200 when "Blackwell" is released. The H100 and H200 will be NVidia's bread and butter for the next couple of quarters, and it is against those platforms that AMD will position the MI300X and MI325X.
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To: Johnny Canuck who wrote (59932) | 9/10/2024 6:44:40 PM | From: Johnny Canuck | | | Skip Navigation
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Energy Oracle is designing a data center that would be powered by three small nuclear reactors Published Tue, Sep 10 20243:54 PM EDTUpdated 3 Hours Ago
Spencer Kimball @spencekimball
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Key Points
- Oracle is designing a data center that would require more than a gigawatt of power, chairman and co-founder Larry Ellison said.
- The data center would be powered by three small modular nuclear reactors, Ellison told investors this week.
- Small modular reactors are next-generation designs that promise to speed the deployment of reliable, carbon-free power — but they face challenges reaching the commercial stage.
In this article
A view of Oracle’s headquarters in Redwood Shores, California, on Sept. 11, 2023. Justin Sullivan | Getty Images
Oracle chairman and co-founder Larry Ellison had a “bizarre” announcement to make this week.
The electricity demand from artificial intelligence is becoming so “crazy” that Oracle is looking to secure power from next-generation nuclear technology, Ellison told investors on the company’s earnings call Monday.
“Let me say something that’s going to sound really bizarre,” Ellison told analysts. “Well, you’d probably say, well, he says bizarre things all the time, so why is he announcing this one. It must be really bizarre.”
Oracle is designing a data center that will require more than a gigawatt of electricity, the company’s chairman said. The data center would be powered by three small nuclear reactors, he added.
Read more
Small nuclear reactors could power the future — the challenge is building the first one in the U.S.
AI demand could strain electrical grid in coming decade
“The location and the power place we’ve located, they’ve already got building permits for three nuclear reactors,” Ellison said. “These are the small modular nuclear reactors to power the data center. This is how crazy it’s getting. This is what’s going on.”
Ellison did not disclose the location of the data center or the future reactors. CNBC reached out to Oracle for comment.
Small modular nuclear reactors are new designs that promise to speed the deployment of reliable, carbon-free energy as power demand rises from data centers, manufacturing and the broader electrification of the economy.
Generally, these reactors are 300 megawatts or less, about a third the size of the typical reactor in the current U.S. fleet. They would be prefabricated in several pieces and then assembled on the site, reducing the capital costs that stymie larger plants.
Right now, small modular reactors are a technology of the future, with executives in the nuclear industry generally agreeing that they won’t be commercialized in the U.S. until the 2030s.
There are currently three operational small modular reactors in the world, according to the Nuclear Energy Agency. Two are in China and Russia, the central geopolitical adversaries of the U.S. A test reactor is also operational in Japan.
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To: Johnny Canuck who wrote (59933) | 9/10/2024 10:42:30 PM | From: Johnny Canuck | | | Index Update
SP500 building on the counter rally that started yesterday. Core CPI up next and then the rate cut next week so it is a wait and see for traders.
DOW not so constructive as the short term downtrend continues down.
DOW transport also back the short term downtrend.
DOW utilities still building in interest rate increases.
TTLT suggesting the interest rate might be higher than expected.
USD setting a lower high on this bounce. This is not good. Expect a retest of the current low near parity.
Sell signal setup on the COMPQ negated. It looks like it has set a higher low. Traders will be looking to see if it can build on this base.
Semiconductors also setting a higher low. It really need to clear the 250 zone before traders get more interested in the sector.
Russell 2000 still in a short term downtrend and it is has not created a higher low, so it is pretty vulnerable.
Financials showing some short term weakness as a short term sell signal is setting up.
Energy sector breaking the lower range of the intermediate channel from the last few months. A recession being priced in?????
Gold still waiting for something.
Consumer discretionary is waiting after a short term rally. Traders are not sure about consumer demand.
It is too early to tell, but for the first time we are seeing some hesitation in finance and energy, which may be suggesting that traders are starting to price in a recession. The recession may only be mild and short but it still there. |
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To: Johnny Canuck who wrote (59934) | 9/10/2024 11:05:55 PM | From: Johnny Canuck | | | Put TXN and SMH on your watch list.
TXN is the strongest of the semiconductors and while not specifically tied to any sector, electronics need the analog products and chip for pretty much everything. Their guidance was for an end of the inventory issue. They may be the company seeing the recovery first. Keep in mind they are one data point but if they rise to a new high, it is an indication that traders are going to go with the strongest first and then shift in to the over semiconductor companies.
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To: Johnny Canuck who wrote (59935) | 9/10/2024 11:08:50 PM | From: Johnny Canuck | | | TSLA is going to go counter to the overall market trend till its announcement about robot taxis in October. I expect it to be a sell the news event. China has a incentive to make it work, other countries will have a harder issues as it only really works well if all cars are robot cars. Liability remains the main issue in most westernized countries.
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To: Johnny Canuck who wrote (59936) | 9/11/2024 12:33:05 AM | From: Johnny Canuck | | | Nvidia is expected to grow quickly through 2026. These companies may grow faster. Published: Sept. 10, 2024 at 1:19 p.m. ET By Emily Bary Philip van Doorn An overwhelming number of analysts still rate Nvidia a buy, and they expect a significant gain for the stock over the next year
Nvidia Corp. dominates coverage of the semiconductor manufacturing space, and rightly so. But many other chip makers are expected to put up impressive numbers over the next two years. Nvidia NVDA has commanded the market for graphics processing units being deployed by data centers to support their corporate clients’ development of artificial-intelligence technology. The company has been showing dramatic increases in revenue for the past five reported fiscal quarters. Nvidia’s market capitalization has increased to $2.61 trillion from $358 billion two years ago. The company’s stock now makes up 5.7% of the SPDR S&P 500 ETF Trust SPY, the oldest and largest exchange-traded fund tracking the S&P 500 SPX. Only Apple Inc. AAPL and Microsoft Corp. MSFT are weighted more heavily in the index. Nvidia more than doubled sales last calendar year, and it’s expected to do the same this year. The company likely won’t be able to keep up that rapid rate of growth going forward, but it’s still expected to be a relatively fast grower within its sector. Analysts on average model a nearly 33% compound annual growth rate for Nvidia’s revenue through calendar 2026. That’s notable as some investors have started to get worried about Nvidia’s growth potential for calendar 2026, especially in light of a less dramatic revenue beat in the latest quarter and swirling questions about the return on investment for AI spending. If big cloud customers and others don’t see enough AI revenue to justify their investments, they may be less inclined to pour more money into AI hardware. Screening semiconductor stocks When a company essentially creates a large and lucrative new market, the competition can be expected to up its game and take a share eventually. Or maybe in the case of Nvidia, there will be a breather for GPU implementation as companies investing so much in new hardware feel pressure to derive profits from AI-related related products and services. So this is a good time to look ahead. We can do this by calculating expected compound growth rates for semiconductor-industry players’ revenue over the next two years. For this screen we started with the 30 components of the iShares Semiconductor ETF SOXX, which tracks the PHLX Semiconductor Index SOX. Then we added the 31 additional companies in the S&P 1500 Composite Index XX:SP1500 that are in the semiconductor industry, as determined by FactSet, or in the Semiconductors and Semiconductor Equipment Global Industry Classification Standard group, as per companies’ filings with the Securities and Exchange Commission. The S&P Composite 1500 Index is made up of the S&P 500 SPX, the S&P MidCap 400 Index MID and the S&P Small Cap 600 Index SML. Then we looked at calendar-year revenue estimates through 2026 among analysts polled by FactSet to see which companies are expected to show the highest two-year sales CAGR. We used estimates for calendar years, as adjusted by FactSet, because many companies confuse investors with fiscal years that don’t match the calendar. For example, on Aug. 28, Nvidia announced results for the second quarter of its fiscal 2025. Among the 61 companies in our initial group of manufacturers and designers of semiconductors and related equipment, consensus sales estimates were available through calendar 2026 for 53 companies. Among the 53 remaining companies, there are the 17 for which sales are expected to increase at an annualized pace of more than 20% from calendar 2024 through calendar 2026. Calendar-year sales estimates are in millions. Company | Ticker | Expected two-year sales CAGR through 2026 | Est. 2024 sales | Est. 2025 sales | Est. 2026 sales | SolarEdge Technologies Inc. | SEDG | 45.1% | $1,089 | $1,905 | $2,294 | Wolfspeed Inc. | WOLF | 39.8% | $868 | $1,150 | $1,696 | Silicon Laboratories Inc. | SLAB | 33.2% | $603 | $903 | $1,070 | Nvidia Corp. | NVDA | 32.9% | $120,095 | $174,920 | $212,166 | Enphase Energy Inc. | ENPH | 30.1% | $1,400 | $2,026 | $2,369 | Cohu Inc. | COHU | 28.4% | $406 | $531 | $670 | SiTime Corp. | SITM | 26.5% | $191 | $245 | $305 | Marvell Technology Inc. | MRVL | 26.5% | $5,531 | $7,289 | $8,850 | MaxLinear Inc. | MXL | 24.8% | $357 | $446 | $556 | Micron Technology Inc. | MU | 24.4% | $29,600 | $40,738 | $45,781 | Advanced Micro Devices Inc. | AMD | 24.1% | $25,599 | $32,819 | $39,448 | First Solar Inc. | FSLR | 22.4% | $4,489 | $5,670 | $6,723 | Teradyne Inc. | TER | 22.4% | $2,786 | $3,424 | $4,171 | ASML Holding NV ADR | ASML | 20.8% | $30,358 | $40,016 | $44,314 | Onto Innovation Inc. | ONTO | 20.7% | $980 | $1,157 | $1,429 | Universal Display Corp. | OLED | 20.3% | $663 | $757 | $960 | Taiwan Semiconductor Manufacturing Co. ADR | TSM | 20.1% | $86,576 | $106,839 | $124,840 | Source: FactSet | To put these expected revenue growth rates into perspective, the two-year estimated sales CAGR through 2026 for the PHLX Semiconductor Index is 17.1%. This index has a modified market-cap weighting with an 8% maximum when the underlying index is rebalanced quarterly. Shares of SolarEdge Technologies Inc. SEDG, which leads the list, have had a brutal year, falling more than 80% over the course of 2024 to date. The company makes technology for solar-power generation, and it’s been hurt by a weak solar market and general sector pressure. Despite analysts’ projections for fast sales growth going forward, the company faces financial challenges elsewhere. In launching coverage of SolarEdge shares with a hold rating earlier this month, Jefferies analyst Julien Dumoulin-Smith said that ”the path forward is opaque with continued negative [free cash flow].” SolarEdge has also become a popular short play, with short interest amounting to more than 30% of the float, according to FactSet data. Other solar plays, including Enphase Energy Inc. ENPH, place among the top projected sales growers as well. “We recognize the re-acceleration in growth ahead but ultimately see the recovery and upside from domestic content priced-in with execution risk ahead,” Dumoulin-Smith wrote in taking up coverage of Enphase shares, also with a hold rating. Wolfspeed Inc. WOLF ranks second on the list for expected sales CAGR through 2026. The company specializes in making electronic components using silicon carbide for electric vehicles. It also provides components for charging and power storage equipment. The company isn’t expected to show a quarterly profit for at least two more years, according to FactSet’s consensus estimates. Most analysts have neutral ratings for Wolfspeed’s stock. In a note to clients on Aug. 22, following the company’s most recent quarterly report, Oppenheimer analyst Colin Rusch wrote that some of investors’ concerns about the company’s financial health were being addressed by a cut in planned capital expenditures and the expectations of federal funding through the CHIPS Act. Next up is Silicon Laboratories Inc. SLAB, an analog and mixed-signal chip company that is expected to post its second calendar year in a row of declining sales in 2024 before rebounding big through 2026. That hits on a general trend in the semiconductor sector. If you focus just on the AI craze, you might think the chip sector is universally hot, but many areas of the market including automotive and industrial semiconductors have faced recent pressure. That sets companies up for big potential revenue recoveries if their end markets turn around. The issue of Nvidia’s forecast moving through calendar 2026 is especially topical as investors think about AI returns. Mizuho desk-based analyst Jordan Klein wrote ahead of Nvidia’s late-August earnings report that the top question on the buy side concerns the growth outlook for cloud capital spending in calendar 2026 versus calendar 2025. “Nobody really knows,” he wrote. “Investors feel good about this year and 2025 for sure, but in 6-8 months, [Nvidia’s stock] will trade off [calendar-year 2026 estimates] and those will rely heavily on biggest GPU and AI compute buyers, or the cloud hyperscalers (vs sovereigns, enterprise, edge devices).” Meanwhile, rival Advanced Micro Devices Inc. AMD sits just outside the top 10 in terms of expected CAGR through 2026. The company seeks to claw into Nvidia’s dominant market share in AI GPUs, and it also could benefit if some of its non-AI businesses recover. For instance, AMD’s gaming business saw a 61% revenue decline in the latest quarter and is expected to post sharp declines in the next two as well, before getting back into positive growth territory. On AI, there’s plenty of market opportunity for AMD in the near term, but its rival certainly isn’t sitting still. Nvidia is targeting a one-year product cadence for new offerings, which should keep AMD on its heels. Leaving the group in the same order, here is a summary of opinion for these stocks among analysts working for brokerage firms polled by FactSet: Company | Ticker | Share buy ratings | Share neutral ratings | Share sell ratings | Sept. 9 price | Consensus price target | Implied 12-month upside potential | SolarEdge Technologies Inc. | SEDG | 17% | 74% | 9% | $17.94 | $30.88 | 42% | Wolfspeed Inc. | WOLF | 32% | 57% | 11% | $7.59 | $18.71 | 59% | Silicon Laboratories Inc. | SLAB | 42% | 50% | 8% | $105.54 | $139.75 | 24% | Nvidia Corp. | NVDA | 94% | 6% | 0% | $106.47 | $149.12 | 29% | Enphase Energy Inc. | ENPH | 55% | 38% | 7% | $103.04 | $127.57 | 19% | Cohu Inc. | COHU | 57% | 29% | 14% | $23.35 | $32.71 | 29% | SiTime Corp. | SITM | 86% | 0% | 14% | $133.53 | $138.33 | 3% | Marvell Technology Inc. | MRVL | 94% | 6% | 0% | $68.93 | $93.25 | 26% | MaxLinear Inc. | MXL | 45% | 55% | 0% | $13.33 | $21.33 | 38% | Micron Technology Inc. | MU | 93% | 5% | 2% | $86.27 | $171.13 | 50% | Advanced Micro Devices Inc. | AMD | 81% | 19% | 0% | $138.15 | $186.67 | 26% | First Solar Inc. | FSLR | 78% | 22% | 0% | $205.36 | $291.94 | 30% | Teradyne Inc. | TER | 53% | 42% | 5% | $124.20 | $145.47 | 15% | ASML Holding NV ADR | ASML | 77% | 20% | 3% | $749.82 | $1,124.12 | 33% | Onto Innovation Inc. | ONTO | 100% | 0% | 0% | $180.63 | $261.21 | 31% | Universal Display Corp. | OLED | 75% | 25% | 0% | $190.24 | $228.89 | 17% | Taiwan Semiconductor Manufacturing Co. ADR | TSM | 95% | 5% | 0% | $162.78 | $209.84 | 22% | Source: FactSet | Click on the tickers for more about each company, including news coverage, stock charts, price ratios and financials. |
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To: Johnny Canuck who wrote (59937) | 9/11/2024 12:45:49 AM | From: Johnny Canuck | | | - Home
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Meta is one of the cheapest big tech stocks, and that earns it a new ‘buy’ call Last Updated: Sept. 10, 2024 at 10:41 a.m. ET First Published: Sept. 10, 2024 at 9:03 a.m. ET By Ciara Linnane Meta is poised to be an open-source leader for the next two major tech platforms, say analysts
Meta Platforms Inc. has earned a spot as a top pick in the mega-cap space thanks to leadership in two major technology platforms and an attractive valuation, D.A. Davidson said Tuesday, as it initiated coverage of the stock with a buy rating. Analysts Gil Luria and Alex Platt assigned the stock a $600 price target, about 19% above its current price. The Facebook parent META is positioned to be Open Source leader for AI Foundation Compute and Spatial Compute, the analysts wrote. AI Foundation Compute refers to the infrastructure, models and frameworks needed for large-scale AI applications, while Spatial Compute integrates AR, VR and immersive environments. “Unlike the nimble innovations of past tech cycles that favored startups, these platforms require enormous computational power, data, and long-term vision—factors that favor mega-cap firms with the resources and strategic foresight to commit to such undertakings,” they wrote. “In this context, the distinction between open platforms and closed-garden approaches will become a key competitive dynamic.” Alphabet Inc. GOOGL , Apple Inc. AAPL , Amazon.com Inc. AMZN and Microsoft Corp. MSFT are all taking a closed-garden approach to the platforms, leaving Meta with the pole position on the open side. Meta has chosen to open source elements of AI compute, the analysts wrote, citing as examples Llama, PyTorch and FAISS, or Facebook AI Similarity Search (Faiss), a library that allows a user to quickly search for multimedia documents that are similar to each other. PyTorch is a framework for building deep learning models, while Llama is a family of large language models released by Meta AI starting in 2023. “It helps that Meta’s core product actually benefits from AI,” the analysts wrote. While Google still needs to manage the shift to AI-enhanced search, Meta is already reporting how advancements in AI are driving improvements in ad delivery and yields, said the analysts. “This makes it easier to justify not only the investments in AI compute, but also open sourcing them to capture the benefits from the developer community,” they wrote.
In spatial computing, D.A. Davidson is expecting the tens of billions that Meta has poured into Reality Labs, the renamed Oculus VR, to become the moat that positions the company to be open source winner alongside Apple’s closed garden. Reality Labs is the Meta unit that produces virtual reality and augmented reality hardware and software. “While Apple’s companion for the PC era was Microsoft and Apple’s companion for the mobile era was Google Android, we believe neither Microsoft nor Alphabet are as focused enough on this next large platform,” the analysts wrote. Meta is also benefiting from the fact that it’s very much managed in “founder mode,” the analysts said, referring to the recent Silicon Valley discussion that compares companies run by their founders with those run by professional managers. Meta exemplifies those benefits more than any other mega-cap, they wrote. Co-Founder and Chief Executive Mark Zuckerberg “has navigated numerous existential challenges successfully,” and appears to be focused on the next two large opportunities, said the analysts. They noted Zuckerberg’s “deliberate transformation as a leader” to adapt to Meta’s goals. The $600 price target is based on 24 times 2025 EPS. The current valuation at 21 times makes Meta aside from Google, the least expensive mega-cap, even before factoring in the option to sever Reality Labs losses, which would take the multiple down to 16 times. “With this in mind, as we move towards the large future platforms, we will be monitoring short term challenges such as tougher comps, reliance on Chinese shlock-hawkers and the upcoming election cycle,” said the analysts. Meta’s stock was down 0.3% Tuesday, but has gained 42% in the year to date, while the S&P 500 SPX has gained 14.7%. Read now: Beware of Big Tech grabbing control of its own AI regulation |
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