Meta Platforms to 'unlock new business with AI' - Oppenheimer raises price target

Oppenheimer raised its price target for Meta Platforms to $775 from $665, citing a stronger advertising environment and increased revenue estimates for FY25 and FY26, projecting 17% and 15% revenue growth ex-FX, respectively. The firm anticipates higher capital expenditures of $68 billion and $85 billion in 2025 and 2026 as Meta invests heavily in AI, despite concerns about TikTok and potential AI model development challenges. Oppenheimer's EPS estimates were also raised to $25.41 for 2025 and $28.23 for 2026.

Analysis

Oppenheimer has significantly raised its price target for Meta Platforms (META) to $775 from $665, underpinned by a more favorable macroeconomic and advertising environment than anticipated six weeks prior. The firm has consequently increased its FY25 and FY26 revenue estimates for Meta by 4% and 1% respectively, forecasting robust ex-FX revenue growth of 17% in 2025 and 15% in 2026, which implies market share expansion of 102 basis points in 2025 and 63 basis points in 2026 against projected digital advertising industry growth of 10% and 12% for those years. However, potential near-term headwinds from TikTok, assuming no ban, and long-term risks associated with falling behind in AI model development, particularly given the perceived disappointment of Llama 4, are noted. To bolster its AI capabilities, Meta is expected to undertake substantial capital expenditures, forecasted at $68 billion for 2025 and $85 billion for 2026, including the impact of its $14.3 billion acquisition of Scale AI. Alongside revenue, EPS estimates have also been revised upwards to $25.41 for 2025 (a 6% year-over-year increase) and $28.23 for 2026 (an 11% year-over-year increase), with the new price target based on 27.5 times 2026 EPS, a multiple representing a 3% discount to peers despite Meta's projected 2024–2027 EPS growth being 39% slower. Investor optimism persists regarding Meta's ability to generate new revenue streams through AI.

Key Decisions for Investors

• Consider Oppenheimer's upgraded price target and revenue outlook for Meta, reflecting improved advertising conditions and anticipated market share expansion, but weigh this against the noted valuation discount to peers relative to its EPS growth.
• Monitor Meta's substantial planned capital expenditures in AI, specifically $68 billion for 2025 and $85 billion for 2026, and the execution of its AI strategy, including Llama developments and Scale AI integration, as these are pivotal for future growth but carry significant financial commitment.
• Evaluate the persistent competitive risk from TikTok and Meta's ability to innovate effectively in AI model development, as these factors are crucial to achieving the projected financial performance and sustaining investor confidence.