- Meta will report fourth-quarter earnings after the close on Wednesday.
- Traders are on high alert for key details on AI monetization.
- The stakes for mega-cap earnings have been raised by DeepSeek's jarring debut this week.
Investors are bracing for Meta's fourth-quarter earnings report after the closing bell on Wednesday, with the tech giant set to unveil results in the middle of a difficult week for tech stocks.
The Facebook parent could come under closer scrutiny this quarter following a major sell-off in the tech sector on Monday sparked by a new AI model that shook the US stock market's dominant bull narrative.
Meta dropped as much as 3% Monday amid a broader market rout brought on by DeepSeek, an AI app from a Chinese startup that's challenged US investors' assumptions about the technology. The stock managed to reverse its decline and rallied on Tuesday, trading nearly 3% higher at $677 a share.
"We view the DeepSeek fear across the tech world as in essence a "tech AI head fake" that will be short lived as more details and analysis comes out about DeepSeek's model," Wedbush analyst Dan Ives wrote in a note on Tuesday. "We continue to view this is a golden buying opportunity that will not change the AI spending trajectory of the AI Revolution."
According to Bloomberg data, analysts expect earnings per share of $6.78 and revenue of $46.98 billion.
Meta investors will be listening for key updates during the tech titan's earnings call, including revenue guidance for 2025, its plan to monetize AI, and how the company might benefit from drama surrounding TikTok.
Here's what Wall Street expects from Meta's fourth-quarter earnings report.
Bank of America: A slew of positive catalysts
Meta could benefit from a slew of positive catalysts this year, Bank of America analysts said.
The bank said that the tech firm is still in the early stages of monetizing its AI projects and integrating AI into its messaging platforms, such as WhatsApp and Messenger.
"AI monetization should further ramp in 2025, driving strong relative advertising growth vs the industry," the bank wrote in a note.
Meta could also stand to benefit from any disruption to TikTok, with some companies potentially shifting to Meta to advertise. TikTok was estimated to take in around $12 billion in ad spending last year, BofA analysts said, citing an estimate from eMarketer.
Meta has also said it would slash another 5% of its workforce this year, which could improve profit margins.
"With a stable macro backdrop, a growing AI contribution to ad revenues, ramping messaging revenues, and continued cost discipline (recent headcount cuts), we remain positive on the stock in 2025," analysts added.
The bank reiterated its "Buy" rating on the stock and raised its price target to $710 a share, implying 4% upside from current levels.
JMP: 'AI investment cycle appears early'
Meta has said it's planning more than $60 billion in capital expenditures this year and will expand its AI teams "significantly." The announcement is a sign that markets are still in the early stages of the AI investment cycle, which is a positive for mega-cap tech firms, JMP analysts said.
Meta's large user base should also help distribute the firm's AI initiatives, the analysts added. The company's messaging apps, WhatsApp and Messenger, could be "significant starting points" for rolling out some of its AI products.
"Meta's willingness to invest also suggests to us that near-term revenue visibility is positive as we believe Meta continues to benefit from its AI product initiatives," the firm wrote in a note.
The firm maintained its "Market Outperform" rating on the stock and issued a price target of $750, implying 10% upside from current levels.
Truist Securities: 'Key beneficiary of TikTok's mishaps'
Meta is expected to post strong growth for the year, Truist said, highlighting catalysts like political spending and spending from Chinese-based advertisers on its platforms.
Analysts are anticipating the firm to post $47 billion in total revenue, representing a 17% year-over-year gain.
The firm will likely be a key beneficiary of TikTok's challenges in the US. According to Sensor Tower, a social media analytics site, Threads saw a significant uptick in user time over the fourth quarter, likely due to the risk of TikTok being shut down, analysts said.
"We view META as a key beneficiary of TikTok's mishaps and as one of our 2025 favorites," Youssef Squali, a managing director at Truist, wrote in a note.
"META remains one of our favorite names entering 2025, a positive stance that's predicated on sustained demand momentum fueled by strong products and execution driving share gains, and higher margins despite heavy investments into AI/ML. We also see potential contribution from AI agents and from AR/VR products over time."
The firm reiterated its "Buy" rating on the stock and price target of $700, implying 3% upside from current levels.
Jefferies: 'Top AI pick'
Jefferies analysts said Meta appears to have strong growth momentum behind it. They estimate that revenue will come in around $46.5 billion over the fourth quarter, while first-quarter revenue guidance will be around $41.8 billion.
"We note that TikTok's banning/temporary shutdown should be potential added tailwind for Q1 but expect META will likely be conservative in baking in its impact given how fluid the situation is," the firm added.
Other checks are also proving to be positive for Meta's outlook. The company, for instance, saw strong ad spending throughout October and November. Teenagers have also indicated that they will turn to Instagram reels if TikTok is banned from the US.
"Overall, we continue to be encouraged by META's ability to sustain DD rev growth, given the combination of higher engagement from AI investments, increased advertiser efficiency and ramping of incremental monetization formats (e.g. WhatsApp & Llama)."
The firm reiterated its "Buy" rating on the stock and issued a price target of $715, implying 5% upside from current levels.
CFRA Research: Increased focus on AI
According to CFRA Research, Meta likely announced its plan for $60 billion of capex this year to emphasize its focus on artificial intelligence.
"We think it makes sense for META to get the news out of the way before earnings on Jan. 29 and note the increased focus on AI will likely translate to higher revenue potential over time," Angelo Zino, senior equity analyst at CFRA, wrote.
"Investors will now be looking to Q1 guide next week and we hope growth rates don't decelerate more than expected (we see mid-teens revenue growth in 2025 but forex will be a headwind) while we also await commentary on how META sees AI monetization efforts playing out in 2025 and 2026."
The firm reiterated its "Buy" rating on the stock.