The American economy has a rich history of producing the world’s most valuable companies. In 1901, American steel became the first company to reach a $1 billion valuation, and 117 years later, in 2018, Apple became the first to cross the $1 trillion threshold.
The iPhone maker also became the first company to surpass $2 trillion in market capitalization. It has been company ever since Nvidia, MicrosoftAnd Alphabet in that ultra-exclusive club.
I think another company could earn a membership soon. Metaplatforms (NASDAQ: META) continues to deliver strong earnings growth and offers incredible opportunities in the artificial intelligence (AI) industry. Share prices are currently around an all-time high, with the company valued at $1.2 trillion.
Here’s how it could reach the $2 trillion mark within three years, and if it does, investors who buy Meta stock today could reap a 67% gain.
AI is transforming the social media industry
Meta is the parent company of the social media platforms Facebook, Instagram and WhatsApp, which attract more than 3.2 billion users every day. Facebook and Instagram have increasingly come to prominence as social networks where users primarily interact with their friends and family, but in recent years they have morphed into something else entirely.
For example, half of the content that appears in users’ Instagram feeds is not posted by anyone. Instead, Meta developed AI algorithms to learn what users like most, show them more of it, and keep them engaged — even if that content comes from a creator, brand, or another user they’re still with. never interacted before. .
Essentially, Facebook and Instagram have shifted from social networking to social entertainment platforms, especially through the short-form video feature Reels. It appears to be working well, as CEO Mark Zuckerberg told investors that AI-curated content feeds were responsible for increased engagement on both Facebook and Instagram last year. The more time users spend on these platforms, the more revenue the company can generate from advertising.
Meta’s foray into AI is only heating up
Meta’s AI strategy goes beyond just content feeds. The company developed the world’s most popular open-source large language models (LLMs), called Llama, which continue to improve with each iteration. Llama 3 has just been released and the next generation is now in training.
Meta’s progress is set to accelerate rapidly following the recent purchase of 350,000 H100 graphics processing units (GPUs) from Nvidia. These are among the most powerful chips for training AI models, and this deal cost Meta an estimated $9 billion.
Llama 3 is already the driving force behind Meta AI, a new chatbot that users can access via Facebook, Instagram, WhatsApp and Messenger. It can instantly generate text and images on command, answer complex questions, and even join group chats to make suggestions on a range of topics.
Soon, each brand will have its own AI representative on Meta’s platforms, who will be available 24 hours a day to handle incoming queries. It could save human social media managers an incredible amount of time, while potentially creating a new source of revenue once the company determines the best way to monetize the service.
Sales and profit growth is accelerating
During the first quarter of 2024 (ended March 31), Meta saw a 20% year-over-year increase in ad impressions, helped by steady increases in users and engagement. It brought Meta’s revenue in the quarter to $36.4 billion, up 27%, which was the fastest growth rate in more than two years.
Meta’s bottom line also benefited from cost cuts in 2023, including 21,000 layoffs and a commitment from Zuckerberg to spend more prudently on initiatives like the Metaverse. As a result, Meta’s net income rose 117% to $12.4 billion in the first quarter.
Meta’s (mathematical) path to the $2 trillion club in three years
Meta plans to invest heavily in AI. Chief Financial Officer Susan Li recently told investors that the company plans $35 billion to $40 billion in capital expenditures (capex) in 2024, which was a notable increase from her previous forecast of $30 billion to $37 billion. Considering how much Meta just spent on GPUs, the revision isn’t surprising.
If AI-managed content feeds continue to get better at increasing engagement on Facebook and Instagram, the company will easily recoup its additional investments in ad revenue alone. Additionally, Meta has an excellent track record of monetizing new features, so Meta AI could make a substantial contribution.
Meta stocks are already cheap as things stand. Wall Street estimates that the company will generate $20.18 in earnings per share in 2024, putting Meta’s forward price-to-earnings (P/E) ratio at 23.4. In other words, the shares will need to rise 34% by the end of this year to trade in line Nasdaq-100 technology index, which has a price-to-earnings ratio of 31.4 at the time of writing.
So if The Street’s forecast holds, the Nasdaq-100 maintains its current price/earnings, and Meta stock rises 34%, that alone will bring the company’s market cap to $1.6 trillion. If the company then posts $23.08 in profits in 2025, as Wall Street expects, that could justify a further 14.4% increase in its stock price, bringing its market cap to $1.84 trillion.
From there, Meta will only need 8.7% earnings growth in 2026 to join the $2 trillion club – again, assuming trading is in line with the current price-to-earnings ratio of the Nasdaq-100 index .
But even if this doesn’t happen within a three-year time frame, I think AI gives Meta a clear path to a $2 trillion valuation.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
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