Is Meta Stock A Buy? Facebook Parent's Shares Test Key Level (2024)

Shares of Facebook parent company Meta Platforms (META) have pushed higher and nearly recovered back to record territory, following a strong second-quarter earnings report. Meta stock has gained nearly 50% this year, following a 194% gain in 2023 that helped the social media giant recover from a deep slump in 2022.

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Meta rejoined the ranks of trillion-dollar market cap tech companies at the start of the year. Its shares are still highly rated among Wall Street analysts. But there are challenges ahead for the tech giant to build on its growth.

Last month, some investors began rotating away from the group of Magnificent Seven tech stocks, which includes Meta. Meanwhile, Meta Chief Executive Mark Zuckerberg is pledging to spend tens of billions of dollars on infrastructure to power the company's AI ambitions, as well as its metaverse-focused business. And Meta will be lapping increasingly difficult year-over-year quarterly comparisons for its digital advertising revenue, which still drives nearly all the company's sales.

Still, Meta's second-quarter results impressed and investors seem ready to give Zuckerberg space to spend big on efforts he says are vital to the company's future.

So, is Meta stock a buy? Here's what to know about recent news and action involving Meta stock:

Meta Stock In Consolidation Pattern

Meta stock closed trading on Wednesday Aug. 28 lower on the day by a half percent, near 517. Shares are trying to break out beyond a 542.81 consolidation pattern buy point, according to MarketSurge.

But the stock has fallen for five consecutive days and is 5% below a high of 544.23 reached Aug. 22. Meta's Relative Strength Rating is 91 out of a best-possible 99.

Shares are hovering just above Meta stock's 21-day moving average, offering a test of support.

Meta stock slumped for much of July, falling to a three-month low of 442.65 on July 25. The slide came as the broader group of Magnificent Seven stocks struggled. The group — which includes Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Alphabet (GOOGL), Amazon (AMZN) and Tesla (TSLA) — shed more than $1 trillion in market cap over a five-day span last month. Some investors rotated out of outperforming big tech stocks and into other markets as confidence increased about a rate cut.

Meta stock jumped 4.8% on Aug. 1, following a second-quarter earnings report that beat expectations for sales and earnings. Shares were knocked back a bit after that by a weak U.S. jobs report on Aug. 2 that sent markets tumbling.

But investors pushed Meta higher for most of August, prior to the recent downtrend. Meta stock decisively overtook both its 50-day and 21-day moving averages on Aug. 8.

Meta Q2 Tops Expectations

Meta stock rallied at the start of the month on the social media giant's strong second-quarter earnings report.

As reported by the company on July 31, revenue in the June-ended quarter advanced 22% year over year to $39.07 billion. That was better than the $38.26 billion in sales that analysts were forecasting, according to FactSet.

Earnings were $5.16 per share, up 73% from a year earlier. Analysts were expecting $4.72 per share, according to FactSet.

Meta also forecast roughly $39.75 billion in revenue for its September quarter, ahead of analyst expectations of $39.1 billion in sales for the company's Q3.

"We had a strong quarter, and Meta AI is on track to be the most-used AI assistant in the world by the end of the year," Zuckerberg said in the company's earnings release. "We've released the first frontier-level open source AI model, we continue to see good traction with our Ray-Ban Meta AI glasses, and we're driving good growth across our apps."

The results underscored a strong market for social media advertising on Facebook and Instagram, which power nearly all of Meta's revenue. Ad impressions and average price per ad for Meta both increased 10% year over year for the quarter, the company said.

Zuckerberg Details AI Push

Zuckerberg unpacked Meta's AI strategy on a conference call with analysts to discuss the Q2 results. With the report, Meta told investors it expected to spend between $37 billion and $40 billion on capital expenditures this year, up from its previous range of $35 billion to $40 billion. The company also said it expects "significant capital expenditures growth" for 2025.

Those investments will focus mostly on building advanced data center capacity to support training and deploying AI algorithms. Investors are increasingly anxious about when the significant costs of training and operating AI models will pay off for tech giants. Meta also upped its capex forecast when it gave first-quarter results in late April. At that time, the increased spending was enough to send Meta stock sharply lower.

But Zuckerberg appeared to settle investor worries by detailing how AI is already boosting Meta's business. The company's Meta.ai assistant is growing and AI is already improving content recommendations within Facebook and Instagram, Zuckerberg said.

Longer term, Zuckerberg expects the company can offer fully automated advertising plans to businesses.

"Advertisers will basically just be able to tell us a business objective and a budget and we're going to go do the rest for them," Zuckerberg said on the analyst call.

The results and commentary helped fuel optimism that Meta will be an AI winner.

"Looking for returns on aggressive industry AI spend? Look no further," Evercore ISI analyst Mark Mahaney said in a client note following the report. "Meta has already effectively deployed AI to materially boost its consumer offerings (measured by rising user growth and deepening engagement) and its advertiser offerings (measured by rising return on advertising spend and ad spend). And there is much more to come."

Meta Stock: Regulation Watch

Another factor to watch for Meta is regulation. On July 1, European regulators said Meta is violating digital competition rules by only allowing users to opt-out of ad tracking on Facebook and Instagram by paying for a subscription product. Meta launched paid, ad-free versions of Facebook and Instagram late last year. It was an attempt, the company said, to comply with the EU's Digital Markets Act, which placed tighter restrictions on what big tech companies can do with user data.

But the European Commission said Monday that the paid model does not comply with the law. Meta will have a chance to respond to the preliminary findings.

Meta also is facing an antitrust challenge from the Federal Trade Commission. The FTC sued back in December 2020, alleging Facebook had abused monopoly power in acquiring competitors Instagram and WhatsApp. The original lawsuit was dismissed in 2021, but the FTC filed an amended lawsuit later that same year.

In April, Meta filed to have the lawsuit dismissed ahead of a potential trial. "The FTC has failed to state a plausible claim, and the agency has done nothing to build its case through the discovery process to prove otherwise," the company said.

Meta Stock: Wall Street Projections For 2024

Analysts remain bullish on Meta. Of the 65 analysts following the stock, 83% rate Meta a buy, according to FactSet. Those analysts have calculated an average target price for Meta stock of 568.78, according to FactSet, implying roughly 10% upside from Meta's closing price on Aug. 28.

For the full year, analysts project that Meta's revenue will rise 19.6% to $161.4 billion in 2024, after climbing 15.7% last year, according to FactSet. Revenue slipped 1.1% in 2022.

Meta's earnings are expected to grow this year but at a slower rate compared to Meta's 2023 recovery year. Analysts project the Facebook parent company will post earnings of $21.26 per share in 2024, up 42.7% from 2023, according to FactSet. In 2023, its earnings increased 73% year over year.

Amid the overall bullishness, there are still several debates about Meta stock among analysts. Some investors remain cautious on plans for big AI spending. The company's metaverse efforts are still costing billions each quarter while contributing less than 1% of the company's revenue. And declines last month showed how Meta stock can take a hit when broader confidence in the economy slips.

Further, investors are watching what impact a forthcoming U.S. ban on one of Meta's top competitors, TikTok, could have on the broader ad market. TikTok parent company ByteDance has sued to block the recent legislation, which requires the China-based ByteDance sell TikTok to avoid a ban on the short-video app.

Meta Stock Technical Ratings

Meanwhile, the IBD Stock Checkup tool shows Meta stock holds an IBD Composite Rating of 93 from a best-possible 99. The score means Meta stock is currently in the top 6% of stocks in terms of key performance metrics and technical strength.

Also, Meta stock's Relative Strength Rating has been climbing following its Q2 report. Meta stock has a Relative Strength score of 91 out of 99 as of Aug. 28. That score indicates Meta has outperformed 91% of all stocks in IBD's database over the past 12 months.

However, Meta stock holds a weak Accumulation/Distribution Rating of D. That rating analyzes price and volume changes in institutional ownership for a stock over the past 13 weeks. The current rating indicates more selling than buying by institutions.

Here is a guide to understanding IBD's rating system.

Meta Stock Market Cap

You can check for Meta's current stock price here. Meta's market cap is $1.3 trillion, as of market close Aug. 28. Here is how the stock has grown over time:

*Prices as of Aug. 28

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