On Thursday, UBS made adjustments to its assessment of Meta Platforms Inc. (NASDAQ: NASDAQ:META), reducing the price target on the company's shares to $575 from the previous $610. Despite the downward revision, the firm maintains a Buy rating on the stock.
The decision to lower the price target was influenced by revised earnings estimates for the years 2025 and 2026. UBS now anticipates a 5% and 7% decrease in Meta's GAAP EPS for these years, respectively. The adjustment reflects higher operational expenses (OpEx) and capital expenditures (CapEx) as Meta intensifies its investments in artificial intelligence (AI) infrastructure. These investments are part of the company's strategy to build foundational AI models expected to add long-term value to the business.
The stock experienced a significant drop, falling approximately 15% after hours to around $420. This decline has led investors to worry that Meta's EPS for 2025 might be closer to $20 as opposed to the roughly $25 previously anticipated. However, UBS suggests that such a scenario would likely require an unlikely and self-imposed shift towards AI/chat-based products, similar to the challenging transition from Newsfeed/Stories to Reels, which included monetization headwinds.
UBS notes that unlike the Reels transition, which was prompted by competition from TikTok, the pace at which Meta introduces new AI/chat-based products is within its own control. The firm believes that these products should ultimately contribute positively to user engagement.
In concluding the assessment, UBS presents a risk-reward analysis for Meta shares, indicating a potential downside risk to $370 compared to a base case target of $575. This assessment suggests that the current share price offers a favorable risk-reward balance for investors.
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