Shares of Meta Platforms (META 1.11%) have delivered explosive returns to investors since bottoming out in 2022, and the stock continues to hit new highs. The stock surged recently after the company reported strong revenue and earnings performance in the fourth quarter.
Despite the stock’s monster run, it still offers upside. The shares are trading at a reasonable earnings multiple of 30, consistent with the S&P 500 (^GSPC -0.01%) average. Moreover, the latest earnings report revealed a few catalysts that are boosting investor confidence in the social media leader’s growth prospects.
Here are three reasons the stock is a buy.
1. Meta’s AI investments are driving higher returns on capital
Big tech companies have accelerated their capital spending over the last year to support the build-out of technology infrastructure for artificial intelligence (AI). But not all are seeing improving earnings growth and return on capital employed.
Consider that Microsoft and Meta Platforms have roughly doubled their capital expenditures over the last three years, but Microsoft reported earnings growth of just 10% year over year in the most recent quarter, while its return on capital dipped a few percentage points to 30%.
Meanwhile, Meta Platforms increased its capital expenditures by 37% to $37 billion in 2024, but its earnings per share grew an impressive 60% year over year. This stellar performance increased its return on capital to a company-record 33.6% last year.
Meta’s improving returns on capital and robust earnings growth is boosting investor confidence in its AI strategy.
2. Growing advertising revenue
Meta’s primary means of generating revenue from its social media platforms is advertising. The company’s revenue grew 22% in 2024, reaching $164 billion, and there are two ways AI could benefit its future growth.
Meta AI is a personalized assistant that could reach more than 1 billion users this year. As the company continues to train its AI models, this assistant will get better at learning about a user’s interests and increase their engagement with Meta’s family of apps. This could have a significant impact on advertising.
Last year, Meta and AI chip leader Nvidia teamed up to launch Andromeda, a machine learning system that is improving advertising performance. Andromeda filters through tens of millions of ads to find a small number that will be most relevant to someone browsing one of Meta’s apps.
Meta has a powerful growth engine working here. Meta AI is helping increase user engagement on one end, and on the other, Andromeda is making it easier for advertisers to connect with more than 3.3 billion daily active users.
3. Hardware innovation
Another factor that is raising investor sentiment around Meta stock is the potential for a growing number of use cases with AI over the long term. One of those opportunities is Meta’s Ray-Ban AI glasses that have reportedly sold more than 1 million, and CEO Mark Zuckerberg is optimistic about future sales.
“This will be a defining year that determines if we’re on a path toward many hundreds of millions, and eventually billions, of AI glasses, and glasses being the next computing platform like we’ve been talking about for some time, or if this is just going to be a longer grind,” he said during the Q4 earnings call.
It’s possible Meta’s Ray-Ban glasses might have hit their ceiling, considering how previous attempts have failed (e.g., Alphabet‘s Google Glass). But management is clearly not giving up on the potential for this to become a significant revenue contributor over time, and considering the popularity of Ray-Ban, these new glasses could find a growing audience.
Importantly, this product won’t hurt Meta’s business if it fails, but if they take off, it would further validate Meta Platforms’ AI strategy and fuel the stock higher.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
