By Angela Palumbo
Meta Platforms stock has soared this year on confidence in the company’s generative artificial intelligence initiatives. But management’s plans to spend heavily on AI are a reason to sell the stock, according to BNP Paribas.
Analyst Stefan Slowinksi initiated coverage of Meta with an Underperform rating and a target of $360 for the price. That implies a decline of 18% from Wednesday’s closing price of $439.19.
Slowinksi cited the high cost of investing aggressively in generative AI, plus the fact that he believes “Meta has no new revenue streams to replenish its resources, which will also continue to be drained by its Metaverse adventures.”
Meta didn’t immediately respond to a request for comment.
Only three Wall Street analysts, including Slowinski, rate Facebook’s parent company at Sell, or the equivalent. Of the 67 analysts tracked by FactSet, 57 say the stock is a Buy, while seven say it is a Hold.
Investors have focused heavily on Meta’s effort to save money. Management touted a ” year of efficiency,” in 2023, reducing hiring, laying off staff, and canceling smaller projects. But in its first-quarter earnings report on April 24, the company said it was increasing its forecast for full-year capital expenditures to a range of $35 billion to $40 billion from $30 billion to $37 billion.
“We continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap,” Chief Financial Officer Susan Li said in the earnings release.
And while Meta’s 88% stock-price increase over the past 12 months is a sign that investors are optimistic about the company’s AI initiatives, the increased spending has raised concerns.
“We view Meta’s ‘year of efficiency’ and recent margin improvements not as a drive to produce better returns, but in part as an exercise to prepare the war chest for the coming AI battle,” Slowinksi wrote.
“Through its efficiency strategy, Meta has created capacity to invest,” Slowinksi said. “Those who believe the recent efficiency initiatives are about driving near term margins and returns may be disappointed, and we believe this was evident at the Q1 results with the company warning that investments will increase.”
Write to Angela Palumbo at angela.palumbo@dowjones.com