Meta (NASDAQ: $META) soared nearly 9% on Thursday to over $500. The surge was catalyzed by the better-than-expected results, where it reported strong revenue growth in its second-quarter results. On the same day, the Dow slid nearly 700 points at one point.
Meta Posts Great Second Quarter Results
On July 31, 2024, after markets closed, Meta reported a 22% year-on-year revenue growth to $39.1 billion. The operating margin saw a 9-point increase to 38%, while net income grew 73% to $13.5 billion.
According to analysts, the strong performance in the second quarter helped to Justify Meta’s rising costs on AI development as expenses. Reality Labs, its AI development division, posted a $4.5 billion operating loss, the second-biggest in two years. Meanwhile, total expenses saw a 7% YoY rise to $24.22 billion.
Upbeat Outlook
The upbeat outlook further buoyed investor interest in the stock. Meta expects revenue of $38.5-$41 billion for the third quarter and $96-$99 billion for the full year.
Meta stated that it expected operating expenses for Reality Labs to continue rising meaningfully YoY as it pushes ahead with product development and scaling efforts. For 2024, the company raised its operating expenses forecast to $37-$40 billion from its previous forecast of $35-$40 billion.
META Stock Performance
During the trading session, META stock soared past the $500 psychological barrier, adding over $120b billion to a market cap of $1.259 billion at the close of trading.
The stock has had a great run in 2024, rising 43.74% this year to $497.74 as of August 1, 2024. Over the past 12 months, it has gained 58.36% and is trading just shy of its 52-week high of $542.81.
The stock is fairly valued compared to industry peers, with a forward P/E ratio of 25.19 compared to Microsoft’s (MSFT) 31.45 and Alphabet’s (GOOG) 22.68. Analysts remain upbeat about META, giving it an average price target of $543.28, a 14.42% upside.
AI Spending Worries
Meta’s performance on Thursday helped to quiet worries about rising AI spending by tech firms. Over the past year, major tech companies have cranked up AI development without any meaningful returns thus far. The strong showing by the tech giant, despite rising AI expenditure, could boost other stocks that have gone all in on AI.
Dow Drops 700 Points On Thursday
After a market rally on Wednesday, August 31, hoping the Federal Reserve could cut rates soon, major US indices stumbled on Thursday after weak economic data. According to the data, the total jobless claims rose 14,000 in the week ending July 27, to 249,000.
After the data showed manufacturing was on the decline, the Dow shrunk by over 700 points at one point during the trading session. It ended the trading session 1.21% lower at 40,347.97, a 494-point decline.
The economic data also affected the S&P 500, which closed 1.37% lower, while the Nasdaq composite fell 2.30%.
Bond investors were even harder hit, with yields on 10-year Treasury bonds falling below 4%, back to the February 2024 level.
What It Means For Interest Rates
The economic data shows there is a decline in upward pressure on inflation. As such, it gives the Federal Reserve more room for cuts. However, the data also shows that the Fed may have held on to high rates for too long as it fought inflation.
The Fed rates, the highest in over two decades, have made it costlier to buy homes, use credit cards, and even cars. If the Fed implements rate cuts starting in September, it could take up to a year for the full effects of the cuts to be felt in the economy.
Friday’s Jobs Report
Later today, Friday, August 2, 2024, the big job report is coming out. Analysts are anticipating a slowdown in hiring for July. They are hoping for a figure that shows employment is not so hot as to increase inflation pressure or so cold that it heightens fears of a recession.
How Should You Invest?
Stock analysts are united in the belief that rates will come down starting in September. However, there is contention on how cuts may occur in 2024. You can set up your investment strategy appropriately depending on how you expect it to play out.
When it comes to META, the stock still has some upside potential. Growth could accelerate in 2025 and beyond as lower interest rates lead to businesses increasing ad spending to capture more consumer spending. As such, it could potentially be a great stock to add to your portfolio.
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