Meta’s AI push drives stock higher: is there further upside or is the stock fully priced?

Meta Platforms Inc. has once again captured the attention of Wall Street with its aggressive push into artificial intelligence, sending its stock up more than 40% from April lows and back near record highs.

The latest catalyst: a $14.3 billion investment in Scale AI, a data-labeling startup whose CEO will join Meta’s growing team focused on developing artificial general intelligence.

The Scale AI deal, finalized last week, comes on the heels of Meta raising its capital expenditure forecast for 2025 to as much as $72 billion — a figure that underscores CEO Mark Zuckerberg’s unrelenting pursuit of dominance in the AI arms race.

Despite the scale of investment, market sentiment has remained upbeat with analysts bullish on the company’s use of AI to drive revenue and accelerate growth.

Some analysts estimate that generative AI tools could add 1–2% to Meta’s annual ad revenue in the near term, and up to 4% by decade’s end.

However, some also fear that continued heavy spending on AI could make the company vulnerable as its impact on its earnings remains unclear so far.

AI momentum lifts broader market optimism

Meta’s rally is part of a wider resurgence in AI-related stocks, which have gained steam after first-quarter earnings helped allay fears that major tech firms might curtail AI infrastructure spending.

The Global X Artificial Intelligence & Technology ETF, which tracks companies like Meta and Amazon, has risen 32% since April 8, far outpacing the S&P 500’s 20% gain and the Nasdaq 100’s 27% over the same period.

Some attribute this resurgence to geopolitical developments, notably the temporary pause in US tariffs announced by President Donald Trump, which spurred a broad relief rally across equities.

Strategic pivot from metaverse to AI yields results

Meta’s rebranding and pivot from metaverse projects to AI-driven advertising and automation appear to be paying off.

A Bloomberg report cited how Allen Bond, portfolio manager at Jensen Investment Management, bought Meta shares for the first time in recent weeks, in part because of the company’s aggressive spending on AI.

“Using AI to optimize the data it has on users for revenue is a clear application, one that allows Meta to play offense while Alphabet is playing defense,” Bond said in the report, referring to concerns that the Google parent could lose market share in the lucrative search business to AI services like ChatGPT.

“While AI is expensive, there is good evidence that it is really paying off so far.”

In the first quarter of 2025, Meta reported a record 31% return on invested capital — more than double the levels seen in 2023 when high spending on metaverse projects dampened margins.

The company now uses AI extensively to improve ad targeting, boost engagement across platforms like Instagram and WhatsApp, and even automate ad creation.

Stock performance outpaces peers — but for how long?

META stock has shown remarkable gains in the past two years, rising 194% in 2023 and another 66% in 2024.

This performance marks a dramatic turnaround from the 64% plunge in 2022.

However, questions remain about the sustainability of these gains.

“It is still in the buy range, since you’re getting pretty strong growth for a pretty reasonable price,” said Greg Halter, director of research at the Carnegie Investment Counsel.

“Still, rallies like this don’t continue forever, and it certainly isn’t the screaming buy it was not too long ago.”

While Wall Street remains broadly optimistic — nearly 90% of analysts tracked by Bloomberg recommend buying — the stock is now trading close to the consensus price target.

META appears fully priced from valuation standpoint

According to Forbes, citing insights from Trefis, from a valuation standpoint, Meta appears fully priced.

Shares trade at 24.5 times estimated earnings, cheaper than other megacaps, but still above its own average over the past decade of about 22 times.

It is currently trading at 10.6 times trailing revenue — well above its four-year average Price-to-Sales (P/S) ratio of 6.8.

Trefis currently values Meta at $702 per share. Its current share price is $682.87.

Further, Trefis says, the long-term impact of AI on the company’s earnings remains unclear, making its continued heavy spending in this area a potential vulnerability.

Since 2023, Meta has already committed $77 billion in capital expenditures, with plans to invest another $64 to $72 billion this year, largely toward building AI infrastructure.

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