Meta Platforms Inc
The first and most important reason was the release of Llama 2 last week (in conjunction with Microsoft Corp
After reviewing details of the Llama 2 release and particularly the broad-based support for META's open approach (a hallmark of the PyTorch machine learning framework initially developed by META and now widely adopted), Samon believed the initiative would help META expand the use of its large language model considerably.
The second catalyst for the rating change was the takeaways from Meta's AI Speaker Series. The company highlighted Messaging and Metaverse, VR, and AR as top use cases for generative AI.
As such, the analyst had an improved longer-term outlook for monetization of WhatsApp and Messenger (perhaps a subscription-based gen AI agent available to businesses?) and the company's Metaverse initiatives, where gen AI capabilities should create significant efficiencies.
The stock's 2024 EV/adjusted EBITDA multiple has expanded from ~8x 2024 EV/adjusted EBITDA to ~10x since Salmon's last rating change. Still, he thinks last week's launch of Llama 2 should help continue this momentum and the new target multiple implies ~12.5x 2024 EV/adjusted EBITDA.
Moreover, with shares having pulled back 8% over the past three trading sessions, the analyst thinks the results are (somewhat) de-risked going into Wednesday's Q2 results.
He expected the continued ramp of Reels and growing advertiser adoption of the Advantage suite of ad products (especially Advantage+ shopping campaigns) to drive outperformance relative to the digital advertising market over the near term.
Finally, with the European Commission adopting an adequacy decision for the EU-U.S. Data Privacy Framework earlier this month, the near-term risk of disruption to META's EU operations is considerably lower.
Price Action: META shares traded higher by 0.43% at $292.86 on the last check Tuesday.
