We recently compiled a list of the 10 Best S&P 500 Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against other S&P 500 stocks.
As per AXA Investment Managers, the US dominated financial markets this year. The investment firm believes that the broader economy has been stronger than anticipated with GDP growth running at an annualized rate of 3.0% in Q2. The blue-chip benchmark, S&P 500 index, has surged ~22% on a YTD basis. Also, the US fixed-income markets saw strong returns. Overall, the financial markets were supported by the success of the US Fed in dealing with inflation.
Interest rates have started to move lower, with credit markets reflecting the strength of the broader US corporate sector, per AXA Investment Managers. At the start of October 2024, the investment firm mentioned that a 50:50 allocation to the S&P 500 Growth equity index and the ICE US High Yield bond index might have resulted in a return of ~18% YTD.
S&P 500 Index – The Road Ahead
Forbes believes that the prevailing outlook for 2025 is cautious optimism. While the momentum in technology innovation, together with the environment of lower interest rates, should help the broader S&P 500 index, investors are required to be wary of certain risks. These include elevated valuations, global tensions, and uncertainty regarding the US presidential election.
According to ClientFirst Wealth, Legacy & Estate Planning, which is an independent, fee-only registered investment advisor (RIA), the ongoing innovation in AI and lower rates should help the S&P 500 Index see growth in the range of 14.5% – 19.6%. Another firm, Running Point Capital Advisors, expects the S&P 500 to see an increase of 7% – 11% in 2025, with some volatility. As per the company, the influencing factors include economic growth, expansion in earnings, higher mergers and acquisitions activity, and a favorable interest rate environment.
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Sectors To Keep on Radar
Forbes highlighted that investors are required to keep certain sectors, like technology, healthcare, and energy, on the radar in 2025. As per IDC, worldwide spending on AI, which includes AI-enabled applications, infrastructure, and associated IT and business services, should more than double by 2028 to reach $632 billion. The incorporation of AI, and generative AI (GenAI) in particular, in a range of products should result in a CAGR of ~29.0% over 2024-2028, which should help the broader technology sector.
Definitive Healthcare believes that investors should see more device makers and pharmaceutical companies jump on the D2C bandwagon in 2025. Also, ICRA, a Credit Rating Agency, expects a strong financial outlook for the broader hospital industry in FY 2025. The optimistic outlook stems from the increasing incidence of non-communicable lifestyle diseases, a rise in per capita healthcare spending, increased medical tourism, and penetration of health insurance.
US Energy Information Administration, in its short-term energy outlook report (October 2024), mentioned that the summer temperatures this year were warmer in the US as compared to last summer, mainly in the upper Midwest and Northeast regions, which supported pushing up the US electricity demand. EIA expects 2% more U.S. sales of electricity to ultimate customers in 2024 as compared to 2023, followed by another 2% expected growth in 2025. Overall, it expects electricity sales to increase throughout economic sectors. It projects that commercial electricity sales will rise by 3% this year followed by a 1% growth in 2025.
A large computer terminal full of complex calculations tracking the company’s cash flow and investment management decisions.
Our Methodology
To list the 10 Best S&P 500 Stocks to Buy According to Hedge Funds, we extracted the stocks from the S&P 500 index. After getting the list, stocks that were the most popular among hedge funds were chosen. Finally, the stocks were arranged in the ascending order of their hedge fund sentiment, as of Q2 2024.
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)
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) operates as a social technology company.
Meta Platforms, Inc. (NASDAQ:META) has been dominating the social media landscape, while, at the same time, continuing to aggressively invest in AI and emerging technologies. The company’s AI initiatives have been showing promising results. It reported that its AI-driven improvements continue to enhance ad delivery efficiency and improve return on ad spend (ROAS) for advertisers. Additionally, Meta AI has been gaining traction, with the company expecting that it will become the most widely used AI assistant by 2024 end.
Meta Platforms, Inc. (NASDAQ:META)’s AI investments tend to go beyond advertising, with the company establishing new features such as AI Studio and Business AIs. These are anticipated to result in additional monetization opportunities throughout its platforms. Its focus on open-source AI compute platforms can act as a strategic growth enabler, potentially positioning Meta Platforms, Inc. (NASDAQ:META) ahead of competitors.
Meta Platforms, Inc. (NASDAQ:META) expects to incur significant capital expenditure towards AI research and product development efforts. The company anticipates full-year 2024 capital expenditures to be between $37 billion – $40 billion. Wall Street sees these investments as crucial for its long-term competitiveness and growth potential. Mizuho upped its price target on the company’s shares from $600.00 to $650.00, giving an “Outperform” rating on 17th October.
Baron Funds, an investment management company, third quarter 2024 investor letter. Here is what the fund said:
“Shares of Meta Platforms, Inc. (NASDAQ:META), the world’s largest social network, were up this quarter, due to impressive top-line growth of 22% year-over-year and solid forward guidance. Despite its large scale, Meta continues to outgrow the broader digital advertising industry, with better AI-driven content recommendations increasing engagement in products like Instagram Reels, and AI improving ad targeting and conversion rates. Our industry checks have continued to validate advertiser adoption and satisfaction, with improvements in Reels monetization, as well as strong adoption of Advantage+, Meta’s AI-driven service to allocate advertiser budgets across its content surfaces.
Meta continues to innovate in Gen AI, with a leading AI research lab and the best open-source models to date. We believe CEO Mark Zuckerberg’s open-source approach will encourage a broader developer ecosystem and standardization based on Meta, which will be beneficial for the company even if Meta doesn’t directly monetize model usage over the near term. In a blog this summer, titled “Open Source AI Is the Path Forward,” Zuckerberg laid out his case:…” (Click here to read the full text)
Overall, META ranks 2nd on our list of 10 Best S&P 500 Stocks to Buy According to Hedge Funds. While we acknowledge the potential of META as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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.