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Large language models, or LLMs, already influence around 20% of Meta Platforms'(NASDAQ:META) content generation and monetization efforts, Needham noted citing some former employees of the social media company.
Generative AI, or GenAI, today is already driving transformative advertising capabilities at Meta including the Advantage+ product, said former employees of Meta as per conversations with analysts led by Laura Martin at Needham.
The analysts had conversations with former Meta employees and a social media ad agency CEO.
“Over the next 2-3 years, he expects Meta to grow its GPU investments as it integrates generative AI across its entire monetization stack,” the analysts noted.
Meta’s projected CapEx for 2024 is $36B, with 70%-80% ($25-$28B) allocated to GPU-related investments. Of this, he expects $22B to $25B to be spent on GPUs themselves. He believes Meta will buy more than 150,000 GPUs from Nvidia in 2024. In the near term, the largest share of GPU investments will relate to monetization, with extra GPUs bought to handle search and AI workflows, each accounting for 3%-5% of the total, he estimates, the analysts added as per their conversations.
The analysts noted, as per their conversations, that the main challenge for Facebook and Instagram is slowing user growth. Facebook is not attracting younger users, as they prefer platforms like TikTok, owned by (BDNCE) and Snapchat (SNAP). Even Instagram is struggling to attract young audiences. This is in part due to TikTok’s rapid growth, which has surpassed YouTube in impression growth.
While user growth is challenged, user engagement on Facebook and Instagram remains strong. He estimates between 35-50 minutes/day. Meta is currently focused on enhancing its recommendation engine and introducing short-form videos to increase its user engagement lengths, according to the analysts’ discussions.
Needham has an Underperform rating on Meta’s stock.
The analysts worry that Chinese discount retailers like Temu, owned by PDD (PDD), and Shein, which accounted for more than 20% of Meta’s 2023 ad revenue, will slow as the geopolitical tensions between the U.S. and China over a potential TikTok ban increase.
The analysts are concerned that that expenses and CapEX estimates will increase faster than consensus estimates during 2024.
Separately, Raymond James reiterated its Strong Buy rating on Meta and raised the price target on the shares to $600 from $550.
Analysts at Raymond James raised their 2025 CapEX estimates for Meta near Street’s high of $50B, which places a modest degree of gross margin pressure (every incremental $10B a ~125bps run-rate gross margin headwind).
The analysts assume the nearly 350K H100 footprint covers the LLM Llama 4 but factor in a ’25 Llama 5 B200 build.
Raymond James lowered its ’25 EPS estimate by 3% to $24.26 steered mainly by higher infrastructure costs.
The analysts raised their price target to $600 to reflect their bullish stance on GenAI monetization across Llama and consumer/business ad opportunities on the platform.
They reiterated their Strong Buy rating as the GenAI nearly $40B monetization opportunity is underappreciated.
Meta (META) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is more positive with a Buy and so is the average Wall Street analysts’ rating, Buy.
