Is Meta's stock a steal? Why a new bull sees big gains ahead.

By Christine Ji

Investors fear Zuckerberg's unbridled spending, but Meta's aggressive AI push might be the key to igniting a 37% rally in the polarizing stock

Meta's AI capabilities could catch up to those of Google and OpenAI by the middle of this year, according to Rothschild & Co Redburn.

Meta Platforms' artificial-intelligence strategy has come with a steep price tag that's giving many investors pause. But what if CEO Mark Zuckerberg's big bet pays off? An analyst at Rothschild & Co Redburn is newly optimistic that it will.

In a Monday note, analyst James Cordwell upgraded Meta's (META) stock to buy from neutral, hiking his price target to $900 from $740. The new target implies roughly 37% upside from Friday's closing price of $658.76. Cordwell said the stock is trading at a serious discount to its long-term value, as investors overlook the massive revenue engine that the company is building.

At the core of the bull thesis is what Cordwell called Meta's "demand machine," or Meta's AI-driven advertising engine that has "unrivalled capabilities matching user demand with advertiser supply." Over the past few years, Meta has rebuilt its ad system to use AI-driven predictions instead of tracking users directly. Systems like Andromeda and Lattice allow the company to analyze a user's full sequence of behavior to target ads with much higher accuracy.

With Meta currently holding only a third of the addressable nonsearch ad market, Cordwell pointed to plenty of "low-hanging fruit" for expansion as the company rolls out its ad technology across more engagement surfaces on Instagram, WhatsApp and Messenger. As a result, Cordwell said Meta can boost revenue at 18% annually from 2025 to 2028.

See more: Meta's stock is trading at a stark discount to Alphabet's. Why analysts see a prime buying opportunity.

Cordwell also noted additional monetization opportunities from Meta Superintelligence Labs, even as capital expenditures grow and investors fear "Zuckerberg unleashed" will burn through the company's cash reserves. Shares of Meta have fallen nearly 9% in the last three months after Zuckerberg announced an increase in infrastructure spending.

"We believe prospects for success are greater than the market is recognizing," Cordwell wrote. He said there are "strong odds" that Meta can improve its AI positioning and be in company with competitors such as Alphabet (GOOGL) (GOOG) and OpenAI by the middle of the year. Meta is expected to launch a new image- and video-generation model as well as an upgraded text model later this year. Superintelligence Lab's timing is "opportune" as it coincides with a new Nvidia (NVDA) hardware cycle that provides the memory and speed required for next-generation intelligence, Cordwell added.

Monetization from Meta's AI lab is expected to lie in two major areas: transforming Meta into a sophisticated "agentic" platform for small businesses and turning the company's social-media platforms into hubs for AI-driven entertainment. By using the recently acquired AI startup Manus for agent orchestration, Meta aims to offer automated tools that handle customer service and business logistics for its 15 million advertisers. This shift could unlock a $150 billion market opportunity by saving small firms significant labor costs, potentially justifying a much higher stock multiple, Cordwell wrote.

Developing additional advanced AI offerings will require more investment, and Cordwell expects Meta's capex levels to reach $117 billion in 2026, higher than Street estimates of $110 billion. The company's expenses for 2026 are also likely to rise. This could be a "near-term risk" to shares when Meta reports fourth-quarter earnings on Wednesday, according to Cordwell, and he said the stock could trade down to the mid $500s following the earnings report.

Despite spending fears, Cordwell said Meta is uniquely positioned to maintain a return on invested capital above 20% thanks to new revenue from AI products. "We recommend investors capitalize on any resulting weakness," Cordwell wrote.

Read: Why Alphabet and Meta investors shouldn't sweat ChatGPT's ad launch - for now

-Christine Ji

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