Why Is Meta a Social Media Stock to Like, and Is an Earnings Tech Rally Ahead?

TL;DR

Meta looks attractive because its 19-to-20-times forward-earnings valuation is described as in line with or below the S&P 500 despite much higher growth. A potential tech rally is also supported by TSMC’s projected 30% sales growth and consensus expectations for 21% big-tech EPS growth in the fourth quarter. Read on for the earnings, valuation, AI-demand, and capital-spending signals behind that outlook.

Transcript

It's Friday on Wall Street. You made it. I made it. And your portfolio made it. I'm Yahoo Finance Executive Editor Brian Sazy, and this is opening bid. Well, I would love to be up here sharing my excitement for putting on my headphones later, waxing my car. Something I very much enjoy doing, no matter if it's 20° outside. There is a more pressing t... Read More

Key Insights

• TSMC's earnings report signals strong AI demand, suggesting growth potential in tech stocks.
• AI is expected to drive significant changes across industries, necessitating robust security measures.
• Big tech's earnings growth is projected to exceed the rest of the S&P 500, highlighting its potential.
• Meta is trading at attractive valuations, with potential for growth driven by AI applications.
• The NASDAQ is showing signs of recovery, with strong performance from key tech players.
• Insider buying in semiconductor stocks like Micron indicates confidence in the sector's growth.
• Netflix's acquisition of Warner Brothers raises concerns but also offers strategic content advantages.
• Social media stocks like Meta, Pinterest, and Reddit offer varied investment opportunities.

Questions & Answers

Q: Why could Meta be a social media stock to like now?

Meta is trading at roughly 19 to 20 times forward earnings, described as in line with or below the S&P 500 despite growth that is multiples higher. Although the stock was down about 5% to start the year, the discussion presents its risk-reward as compelling.

Q: Is an earnings-driven tech rally on the horizon?

The speakers see conditions that could support a renewed tech rally as earnings season begins. Consensus expects big-tech EPS to grow 21% in the fourth quarter, versus about 3% for the rest of the S&P 500, while 80% of the index’s expected fourth-quarter earnings growth is projected to come from IT.

Q: What did TSMC’s earnings indicate about AI demand?

TSMC’s earnings were described as extraordinary and a clear sign that AI demand remains red hot. Its sales are projected to grow 30% this year, and the host suggests that estimate could prove conservative given the strength of the AI boom.

Q: Why have major tech stocks lagged despite business momentum?

Eric Lynch says the major technology companies have generally lagged for six months or more even though their businesses still have momentum. He identifies concern about continually increasing capital-expenditure guidance as a major reason for the weakness.

Q: How do Meta’s and Nvidia’s forward valuations compare?

Nvidia is cited at 25 times forward earnings, while Meta is cited at approximately 19 to 20 times forward earnings. The discussion characterizes Meta’s valuation as in line with or below the S&P 500 despite substantially higher growth.

Q: How was the NASDAQ performing as the week ended?

The NASDAQ was described as acting strong at the end of the week and coming alive over roughly a day and a half. Intraday trading was broadly positive, with Micron up nearly 7%, Palantir up more than 2%, and Nvidia, Microsoft, Tesla, Meta, Amazon, Apple, Google, and Broadcom also moving higher.

Q: How had major technology stocks performed year to date?

Year-to-date performance was mixed: Apple, Microsoft, and Meta were down about 5%, while Google was up more than 6%. Nvidia was up more than 1%, and the semiconductor index was up 9%.

Q: What could strengthen the outlook for major technology stocks?

Strong earnings and some moderation in capital-expenditure guidance could help these stocks. Eric Lynch says even 30% growth when the market expected 29% could provide enough upside, though he does not expect capital-spending moderation during this quarter.

Summary & Key Takeaways

• Tech stocks are gaining momentum, driven by strong earnings reports and AI advancements. TSMC's earnings highlight the ongoing demand for AI technology, suggesting growth potential for companies like Nvidia and Meta. Investors should consider the attractive valuations and growth prospects in the tech sector.

• Meta's focus on AI-driven advertising and its current valuation make it an appealing investment. Despite initial declines, the potential for significant earnings growth remains strong, especially as the company continues to innovate and expand its AI capabilities.

• The broader NASDAQ is showing signs of recovery, with key players like Microsoft, Apple, and Google reversing recent declines. Insider buying in semiconductor stocks indicates confidence in the sector, while Netflix's acquisition strategy presents both challenges and opportunities for growth.