We recently published a list of Billionaire Ken Fisher’s 10 Favorite AI Stocks for the Rest of 2024. Since Meta Platforms Inc (NASDAQ:META) ranks 10th on the list, it deserves a deeper look.
Billionaire Ken Fisher regularly shares his investing wisdom on his YouTube channel, sharing market insights and lessons he’s learned over the decades. Commenting about the Fed’s rate cut, Fisher recently advised investors not to focus on what the central bank is doing and instead pay attention to long-term investing.
“The fact is, and I’ve said this for a long time, I won’t live forever, but I hope to live a long time and keep saying it: central bankers are crazy. Throughout my life, central banks have operated on flawed ideas and groupthink, which is an inefficient way to manage markets.”
Fisher gave an example of how you could end up losing money following the herd mentality when it comes to central bank moves.
“If you had followed the common belief that when the Fed and other central banks hike rates, you should get out of stocks, that would have worked for a couple of months in 2022. By the middle of the summer of 2022, during the height of rate hikes, you would have been on the wrong side of the market. From June 2022 onward, as the Fed hiked rates by 75 basis points nearly every month, the market was just a few months away from rising, leading to the bull market we’re in now, in 2024.
The basic belief that central bank hikes are bad for stocks was wrong from the start because it was already priced in. As soon as central bank hikes were visible, the market had already accounted for them. We saw a bull market begin in October 2022, which has continued despite repeated rate hikes.”
For this article, we scanned Ken Fisher’s hedge fund’s Q2 holdings and picked its top AI investments. We have analyzed the AI-related growth catalysts for each stock. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Meta Platforms Inc (NASDAQ:META)
Billionaire Ken Fisher’s Stake: $3,164,448,477
The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.
But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.
Polen Focus Growth Strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: Home Depot, Meta Platforms, Inc. (NASDAQ:META), and AbbVie. Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
Overall, Meta Platforms Inc (NASDAQ:META) ranks 10th on Insider Monkey’s list titled Billionaire Ken Fisher’s 10 Favorite AI Stocks for the Rest of 2024. While we acknowledge the potential of Meta Platforms Inc (NASDAQ:META), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.