Meta Platforms (NASDAQ: META) saw its shares surge more than 5% on Monday after JPMorgan added the company to its Analyst Focus list, replacing Alphabet. The move reflects growing confidence in Meta's advertising business and its use of artificial intelligence to boost ad performance.
JPMorgan analyst Doug Anmuth noted that Meta's relative advertising strength is becoming increasingly evident, making the stock, along with Amazon, the bank's preferred picks in the internet sector. The upgrade follows Meta's strong third-quarter results, which showed revenue of $64.6 billion, up 26% year over year, with advertising revenue also growing 26% and North American ad revenue up 33%. Adjusted earnings per share came in at $7.40, beating market expectations.
The bank's investment thesis centers on Meta's AI-driven improvements in advertising, as well as the potential expansion and monetization of Meta Muse, enterprise opportunities for the Meta Model API, and Muse Code. This focus on advertising comes as Meta seeks to strengthen its position in AI-powered products and services.
Big Tech Spending to Peak in 2027
In a separate note, Wedbush analyst Dan Ives said he expects big tech capital expenditures to peak in 2027, rather than in 2028 or 2029. He also anticipates free cash flow to recover after reaching its lowest point in the first half of 2027. This revised timeline offers investors hope that the heavy spending on AI infrastructure will ease sooner than previously expected, allowing companies like Meta to return to positive cash flow faster. Meta reported negative free cash flow in its latest quarterly results.
Data-Center Delays Put Focus on AI Efficiency
Morgan Stanley analysts said major AI hyperscalers, including Meta, Alphabet, Amazon, Microsoft, and SpaceX, are well positioned to adapt to changes in the data-center construction environment following the U.S. midterm elections. The analysts maintained their capital expenditure forecasts, arguing that large technology companies could work with state governments or shift projects to more favorable locations. They also noted that requirements introduced by newly elected governors in states like Texas and Ohio are broadly achievable for leading data-center developers.
However, a slower pace of infrastructure development could increase the importance of improving efficiency in existing computing capacity. Morgan Stanley said it is closely watching for greater compute efficiency from leading AI developers in 2027, allowing products to scale with fewer resources. The analysts pointed to comments from Meta and Alphabet on this objective.
A delay in data-center construction could place greater emphasis on improvements in large language model efficiency, potentially benefiting companies with the resources and willingness to invest in their own AI models.
This article is for informational purposes only and does not constitute financial advice.
