Meta Platforms (META) may be approaching a pivotal moment reminiscent of Alphabet's (GOOGL) post-antitrust rally, as the company clears a major legal hurdle and prepares to roll out a new wave of artificial intelligence products. Shares currently trade at roughly 16 times forward earnings, about 25% below their long-term average and nearly 45% off their 2025 peak, according to Morgan Stanley analyst Brian Nowak.
The recent agreement to pay $17 billion to settle allegations that its social media platforms contributed to addiction and harm among young users is substantial, but Wall Street sees it as a catalyst. Resolving this litigation could shift investor focus to Meta's product pipeline, AI investments, and advertising growth, potentially mirroring Alphabet's experience last year.
Alphabet's legal reset as a template
Nowak draws a parallel between Meta's current situation and Alphabet's in 2025. After Alphabet settled the Justice Department's antitrust case over Google's search dominance in September, its price-to-earnings multiple expanded by about 40% in the fourth quarter as investors grew more comfortable valuing its AI ambitions. "There are certainly signals, in our view, that Meta's product pipeline could start flowing following this legal clearing event," Nowak wrote in a note.
Nowak rates Meta overweight with a $775 price target, implying roughly 36% upside. He highlights several potential value drivers: an improved MetaAI, agentic advertising tools for small and medium businesses, new subscription offerings, and a possible cloud business. Collectively, these could add more than $10 to Meta's earnings per share, yet the stock's discount suggests investors are not fully pricing in that potential.
AI as the next growth engine
Meta's biggest opportunity may be leveraging its massive user base to distribute consumer AI. Reports indicate the company is preparing to launch a consumer-focused AI agent called Hatch, which could operate natively within Instagram and WhatsApp. Hatch would autonomously perform tasks like browsing websites, making purchases, booking restaurants, and handling emails, with a high degree of personalization. Meta is reportedly considering a subscription model, with premium tiers up to $200 per month.
BofA Securities reiterated a Buy rating and an $810 price target on Meta following reports of a potential September launch for Hatch. That target implies about 40% upside from the current price of $578. BofA believes Meta's global user base gives it a distribution advantage in the competitive consumer AI market, where OpenAI and Google are vying for dominance.
Watermelon to power Meta's AI push
Meta's AI ambitions extend beyond consumer apps. The company is reportedly targeting an October release for a new flagship foundation model, code-named "Watermelon," which would eventually serve as the primary inference engine for Hatch. This could give Meta greater control over its AI technology and improve its ability to handle complex tasks. However, converting AI interest into sustained adoption remains a challenge, as Hatch must offer a clear advantage over rivals.
AI already boosting advertising
Investors don't have to wait for Hatch or Watermelon to see returns from Meta's AI spending. The technology is already enhancing its core advertising business through better content recommendations, increased engagement, and more sophisticated ad targeting. "The latest few quarters showed us that AI is strengthening, rather than disrupting, the competitive position of the largest advertising platforms," said Bernstein analyst Mark Shmulik. He believes Meta could be the "biggest AI winner in digital ads," potentially overtaking Google search in ad revenue by the end of 2026 and surpassing Google's overall advertising business around 2030.
Regulatory changes from the settlement could also be less damaging than feared, as the company navigates new restrictions on younger users. With the stock trading at a significant discount, analysts see a favorable risk-reward setup. For more on AI-driven market moves, see our coverage of AI agents needing programmable payments and Nvidia's Q2 forecast.
This article is for informational purposes only and does not constitute financial advice.
