Meta is ‘net winner’ on AI spending, says outperforming fund manager who previously sold the stock
An outperforming fund manager who previously sold Meta Platforms shares over concerns about the company’s virtual reality investments is now bullish on the technology giant’s artificial intelligence strategy. Stephen Yiu, chief investment officer of Blue Whale Growth Fund , said that Meta stands out as the only stock in the Magnificent 7 group, in addition to Nvidia , when it comes to artificial intelligence investments. “We really think Meta could be a net winner on the back of this AI spending,” Yiu told CNBC’s Squawk Box Europe on Friday, citing potential benefits from personalized advertising on the firm’s platforms, such as Instagram, Facebook and Threads , and new AI messaging capabilities for businesses on WhatsApp. This optimistic stance marks a significant shift for Yiu, who revealed that his fund had previously sold out of Meta Platform shares two years ago due to concerns about the company’s virtual reality investments. “Compared to two years ago, when we exited Meta at the end of January 2022, we were very concerned about the Metaverse. Because Metaverse was something very different that maybe would take 10 years to see through,” Yiu explained. “But with AI, you can actually see the benefit quite quickly.” Meta’s Reality Labs division, home to the company’s virtual reality technologies and projects, took on $13.72 billion in losses in 2022 before Zuckerberg pivoted strategy. Meta is among the top 10 holdings in Yiu’s Blue Whale Growth Fund, which itself is up 16.6% in 2024. Last year, the fund returned 30.7%, significantly outperforming its benchmark and the S & P 500, which was up 26%. Yiu’s endorsement comes as Meta faces scrutiny over its ambitious AI spending plans, prompting mixed reactions from Wall Street analysts. Meta raised the low end of its capital expenditures guidance for 2024 to $38 billion from a previous outlook near $37 billion. The top end of the capex indication is still $40 billion for this year. The company added that the expenditures, which include purchases of billions of dollars worth of Nvidia’s graphics processing units, will grow significantly in 2025. Deutsche Bank analyst Benjamin Black reacted positively to Meta’s investment strategy, maintaining a “Buy” rating with a $650 price target. “To us, it is becoming increasingly evident that the scaled investments in core AI (and Gen AI) are having a tangible positive impact on advertising performance, driving an ever-widening gap between Meta and its peers,” Black said in a note to clients after the Wednesday’s earnings report. However, some analysts expressed caution. In a note to clients, Scotiabank’s Nat Schindler said that the 9% increase in headcount and infrastructure investment showed a “lack of a clear AI monetization strategy” that raised “questions about sustainability of margin growth.” Morningstar hit a middle ground, acknowledging both opportunities and challenges ahead. “We believe ad campaigns on Meta can derive greater value using GenAI tools, which Meta can capture via its potent monetization engine,” said Morningstar’s Malik Ahmed Khan, maintaining a $560 fair value estimate. “At the same time, we expect near-term margins to remain pressured as Meta’s capital expenditures flow through its income statement as depreciation charges and it continues to spend heavily on AI talent.” — CNBC’s Michael Bloom, Jonathan Vanian, Ari Levy contributed reporting.
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