Meta Platforms (NASDAQ: META) isn't a stock that the market is in love with right now, although it has been viewed more positively in recent weeks as rumors swirl about Meta starting up a cloud computing division. This has helped the stock rally from its lows, but it's still quite cheap overall.
Cheap doesn't always equal undervalued, though, because sometimes the business is in decline, and a cheap stock price is warranted. Is that the case with Meta Platforms? Let's take a look.
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From a valuation standpoint, Meta has rallied from its recent lows, but it's still attractively priced.
The S&P 500 (SNPINDEX: ^GSPC) trades for 21.7 times forward earnings, making this stock cheaper than the broader market. It's also cheap compared to some of its peers. The AI hyperscalers it's commonly compared against are Amazon, Microsoft, and Alphabet. Of these three, Alphabet is probably the best comparison, as its core business is also advertising. However, with Amazon trading at 29 times forward earnings and Alphabet at 25, Meta's stock seems cheap. Microsoft is nearly tied with Meta, trading at 20.7 times forward earnings, so it doesn't qualify as cheaper from that perspective.
Despite this, Meta is growing far faster than each of its peers.
It's not often you can scoop up the fastest-growing stock in a group at basically the current price, but that's exactly what Meta is offering investors. So, the question is, is it the market's perspective on Meta that's tarnished, or is it something Meta is doing? I think it's both.
Right now, Meta is spending hundreds of billions of dollars on AI computing capacity, and doesn't really have anything groundbreaking to show for it. That makes the market nervous, and it's skeptical to trust Meta, as the company has a poor track record of owning cutting-edge technologies. However, Meta is potentially launching a cloud computing business that could convert some unused computing capacity into a revenue-generating asset, something the market loves (which is why the stock rallied over the past few weeks).
So, if Meta announces its cloud computing business and some initial clients, the market may deem it worthy to trade at a mid-20 times forward earnings valuation, unlocking more upside in the stock. However, if it doesn't, the market will maintain the view that Meta is just frivolously spending money, and the stock may sell off as a result.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
