To The Moon

Meta Platforms ( $Meta Platforms, Inc.(META)$ ) is set to report its Q4 earnings on January 29, 2025. With the tech sector facing headwinds from rising interest rates and broader economic uncertainties, investors are closely watching Meta’s results for signs of resilience and growth. The market expects Meta to post strong numbers, particularly in advertising revenue, bolstered by its investments in AI-driven ad solutions and growing platform engagement. However, concerns about escalating AI costs and rising competition could overshadow these gains.

As of pre-market trading, Meta's share price remains relatively stable compared to peers like NVIDIA, which experienced a significant drop, suggesting that investors may have already priced in some risks. This article dives into the key themes driving market expectations, the potential impact of AI costs, the "DeepSeek storm," and post-earnings stock price scenarios based on technical analysis.

Market Expectations for Meta’s Earnings Report

The market is focused on several key metrics for Meta’s upcoming earnings:

• Revenue and Earnings:

  Analysts are projecting a robust year-over-year increase in Meta's earnings, with expectations set at approximately $6.84 per share on $47 billion in revenue. This optimism stems from Meta's strong ad revenue performance and strategic pivot towards AI to enhance user engagement and ad efficiency.

• AI Investment and Costs:

  The market anticipates further details on Meta's AI strategy, particularly regarding the cost implications. There's been a significant buzz about Meta's planned increase in capital expenditures for AI to between $60-65 billion in 2025, which has both stoked investor interest and raised concerns about profitability.

• Guidance for 2025: Meta’s forward-looking guidance will play a crucial role in shaping investor sentiment, especially given uncertainties in the macroeconomic environment.

Technical Analysis Pre-Earnings:

• Current Trends: Meta's stock has been on an upward trajectory, outperforming broader market indices, largely due to positive sentiment around its AI initiatives and ad revenue growth.

• Support and Resistance: Key support levels are around the 50-day and 200-day moving averages, with resistance at recent highs.

• Indicators: The RSI is not in overbought territory, suggesting room for growth if the earnings beat expectations. However, the MACD shows potential for a bearish crossover, indicating caution.

Technical Analysis and Post-Earnings Stock Price Scenarios

Based on technical indicators, here are potential scenarios for Meta’s stock price movement post-earnings:

1. Scenario 1: Earnings Beat

• Hypothesis: Meta delivers strong results and provides bullish guidance.

• Stock Movement: Immediate gap-up, with the stock testing resistance at $675 and potentially breaking toward $700.

• Volume: High trading volume signals strong investor confidence.

• Historical Precedent: Q3 2023 saw an 8% rally after an earnings beat.

2. Scenario 2: Earnings Meet Expectations

• Hypothesis: Meta matches expectations with no major surprises in guidance.

• Stock Movement: Limited upside or sideways trading within the range of $625-$660.

• Historical Precedent: Q4 2022 saw a modest 2.5% gain after meeting estimates.

3. Scenario 3: Earnings Miss

• Hypothesis: Meta misses expectations or provides weak guidance.

• Stock Movement: Sharp sell-off, with the stock potentially testing support levels at $600 or the 200-day moving average at $580.

• Volume: Elevated sell-off volumes.

• Historical Precedent: Q1 2022 saw a 26% drop after a significant earnings miss.

Other Factors to Consider

1. Guidance: If Meta provides weaker-than-expected guidance for 2025 (e.g., reduced ad growth or excessive spending on AI), the stock could face downside pressure, regardless of earnings results.

2. Market Sentiment: Broader market conditions, such as ongoing Fed rate decisions or macroeconomic uncertainty, could amplify Meta's post-earnings moves.

3. DeepSeek and AI Disruption: Investors will weigh Meta's response to potential AI disruptions against its robust advertising and user engagement metrics.

AI Costs: A Double-Edged Sword

The issue of AI costs is increasingly relevant to Meta and could play a pivotal role in shaping the market's reaction to its earnings report. Here's an analysis of how it might impact Meta's share price performance post-earnings:

1. If Meta Highlights Rising AI Costs Without Clear ROI

• Market Perception: Investors could interpret escalating AI investments as a risk to profitability, particularly if Meta cannot articulate how these costs will drive future revenue growth.

• Impact on Share Price: Negative Reaction: A focus on cost without tangible results or guidance could lead to a sell-off, especially if margins tighten significantly. Investors may compare Meta unfavourably to peers like NVIDIA, which has more direct monetization from AI infrastructure. Technical Levels: The stock could test $600 support or even dip toward the 200-day moving average (~$580).

• Precedent: Meta's stock fell 14% in Q1 2022 after the company emphasized heavy spending on its metaverse ambitions without clear revenue potential.

2. If Meta Balances AI Cost With Promising Revenue Growth

• Market Perception: The market is generally receptive to companies investing in transformative technology, provided there’s evidence of ROI. If Meta demonstrates how AI is driving ad targeting efficiency, user engagement, or business adoption, investors may view the spending as a strategic advantage.

• Impact on Share Price: Positive Reaction: The stock could rally, particularly if AI investments are framed as growth catalysts. For example, Meta could showcase the integration of generative AI into its platforms or highlight its cost-saving effects in operations. Technical Levels: A strong earnings report with optimistic AI commentary could push the stock past the $675 resistance and test $700 in the coming sessions.

• Precedent: Meta’s Q3 2023 earnings beat, coupled with strong AI-driven ad revenue growth, led to a +8% post-earnings rally.

3. If AI Costs Are Neutral or De-emphasized

• Market Perception: If Meta provides no new updates on AI costs or positions them as manageable within its broader financial framework, the market may focus on other metrics like advertising revenue, user growth, and operating margin.

• Impact on Share Price: Neutral Reaction: The stock might trade sideways, with limited volatility. Investors would likely shift their focus to broader macroeconomic trends or Meta’s guidance for 2025.Technical Levels: Expect the stock to consolidate around $625-$650 if no significant surprises arise.

4 Broader Context: How AI Costs Fit Into the Narrative

• Meta’s Current AI Strategy:

  Meta is heavily investing in AI to enhance ad targeting, develop AI-powered tools like Llama, and improve platform engagement. While these efforts are promising, they come with high upfront costs for infrastructure and R&D. The market could view these costs as necessary investments if they align with long-term growth.

• Competitive Landscape:

  Emerging AI players like DeepSeek could increase competition and drive down the cost of AI infrastructure, benefiting Meta as a user of AI technologies. If Meta addresses this dynamic, it could reassure investors.

• Macroeconomic Sensitivity:

  In a high-interest-rate environment, investors are less forgiving of companies with rising costs. Meta’s ability to justify its spending will be critical.

In summary, the AI cost issue could significantly affect Meta’s share price, depending on how management communicates the value proposition of its AI investments. If Meta ties rising AI costs to measurable progress in ad efficiency or user growth, the market will likely reward it. On the other hand, vague or defensive commentary about AI spending could raise concerns and trigger a sell-off.

The DeepSeek Storm and Meta’s Resilience

The "DeepSeek storm" began when a former Meta employee reportedly disclosed sensitive information about AI-related projects. This revelation amplified fears of rising costs and heightened competition in the AI space. However, Meta’s pre-market share price has been relatively less affected compared to NVIDIA’s 14% drop, for two reasons:

1. Broader Business Diversification: Unlike NVIDIA, whose revenue heavily depends on AI chip sales, Meta benefits from diversified revenue streams, including advertising, virtual reality, and social media.

2. Market Sentiment: Investors seem to perceive Meta’s AI investments as more strategic and long-term, reducing immediate panic about the DeepSeek disclosure.

Conclusion

Meta’s upcoming earnings report will be a pivotal moment for the stock, with multiple factors influencing its post-earnings performance. While the DeepSeek storm has raised questions about competition and AI costs, Meta’s diversified business model and strategic investments provide a cushion against extreme downside risks. Investors should focus on Meta’s guidance and commentary on AI investments to gauge long-term growth potential.

From a technical standpoint, key resistance at $675 and support at $600 will be critical levels to watch post-earnings. A strong beat could propel Meta to new highs, while a miss may lead to significant downside volatility.

@TigerWire