Meta earnings weigh on Magnificent Seven stocks. Here's why investors shouldn't panic.

By Emily Bary

Analysts see opportunity coming out of Meta's earnings and advise investors to wait for other reports before cutting tech positions

Investors were looking to big technology earnings to set the tone for the market. So what should they make of Meta Platforms Inc.'s latest report, which brought a ho-hum revenue forecast and an upped spending outlook?

"My call is take a deep breath and wait," Mizuho desk-based analyst Jordan Klein wrote. There will be other crucial earnings reports this cycle, and he recommends investors hold out for those before trimming their tech positions in a meaningful way.

In the moment, Wall Street appears jittery. Meta shares (META) are down more than 13% in morning action, and that decline could shave $170 billion off the Facebook parent's market capitalization. And the report is weighing on the broader tech sector, with four of the group of stocks known as the Magnificent Seven down Thursday. Those other laggards are Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOG) (GOOGL), whose shares are all off more than 3%.

See also: Meta's stock slumps toward worst day since 2022, pressuring Big Tech

In Klein's view, the sharp decline in Meta shares Thursday may be more reflective of "unrealistic" expectations than a fundamental change to the company's story.

"When CEOs/CFOs see exciting new growth opportunities on the horizon, the best people take advantage to capitalize vs watching and waiting," he wrote. "Yes, that requires trust, execution, vision. But if that management team's history suggests their investments and strategies pay off more vs not, why not sign up for the potential goodness to come even if it could take multiple quarters to realize/capitalize?"

Meta earnings: Everything to know about about the latest results

Meta is on an "expensive offensive," according to Bernstein analyst Mark Shmulik, but he said that investors should nonetheless stay the course on its stock.

Executives at Meta have "handled every challenge that's come their way - TikTok, privacy, cash burn - and come out the other side stronger, leaner, and prouder," Shmulik wrote. "There's a difference between defense and offense, where expectations are higher and uncertain. But offensive is more fun, isn't it?"

Opinion: Zuckerberg burns some goodwill on Wall Street as he plows forward with the metaverse

Shmulik said he understood the uncertainty about Meta in light of its enhanced capital-spending outlook, but he said the stock still deserved its premium multiple.

"Without sounding overly religious, you either believe in Zuck or you don't, and we do," he wrote, while sticking with his outperform rating on the stock but cutting his price target to $565 from $590.

MoffettNathanson's Michael Nathanson saw particular opportunity in Thursday's selloff, as he boosted his estimates in the face of the stock's decline.

"In our opinion, a stock should move with earnings revisions, and this move just presents a more attractive entry point for Meta investors," he wrote.

Nathanson lifted his price target on Meta shares to $520 from $485, while maintaining his buy rating.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-25-24 1020ET

Copyright (c) 2024 Dow Jones & Company, Inc.