'AI advancement driving engagement': Here's how Wall Street is reacting to Meta's 3rd-quarter earnings

• Meta Platforms stock fell about 3% on Thursday after the company's third-quarter earnings report.
• The parent company of Facebook, Instagram, and WhatsApp reported a continued rebound in advertising revenue that beat analyst estimates.
• Here's how Wall Street analysts are reacting to Alphabet's third-quarter earnings report.

Meta Platforms stock fell as much as 4% on Wednesday as investors reacted to the social media company's third-quarter earnings results.

The stock decline came despite the fact that Meta handily beat analyst's profit and revenue expectations on a continued rebound in the digital advertising market.

And Meta's guidance on its 2023 and 2024 expenses also hit the sweet spot for investors, as it signaled that it can balance its "year of efficiency" cost cutting efforts while it continues to invest in the metaverse and artificial intelligence.

But soft guidance for Meta's fourth-quarter revenue, sparked by the Israel-Gaza war, could be contributing to the sell-off in the stock. 

"We are also seeing more volatility at the start of the quarter...While we don't have material direct revenue exposure to Israel and the middle east, we have observed softer ad spend in the beginning in the fourth quarter, correlating with the start of the [Israel-Gaza] conflict," Meta CFO Susan Li said on the conference call.

Most Wall Street analysts view Thursday's decline in Meta stock as a buy the dip opportunity. Here's what they're saying:

William Blair: "AI advancement driving engagement across the organization"

Meta's work in artificial intelligence is encouraging to analyst Ralph Schackart at William Blair, who said in a Wednesday note that "AI advancement [is] driving engagement across the organization."

"The company's foundational model, Llama 2, is now believed to be the leading open-source model, with more than 30 million downloads last month. Meta's AI-driven feed recommendations continue to grow incremental engagement, with a 7% increase in time spent on Facebook and a 6% increase on Instagram this year as a result of recommendation improvements," Schackart said. 

Meta's AI tools for advertisers are also showing meaningful growth, with its Advantage Plus shopping campaigns scaling to a $10 billion revenue run rate. 

William Blair rates Meta at "Outperform."

Goldman Sachs: "Positive momentum across key product initiatives"

Goldman Sachs analyst Eric Sheridan said Meta's earnings results "paint a picture of solid re-acceleration" in revenue growth thanks to new product initiatives, solid engagement, and contribution from Asia-based eCommerce.

Sheridan also praised Meta's balance of staying efficient from a cost perspective even as it ramps up investments in artificial intelligence. 

"We continue to see META as well-positioned against several long-term secular growth themes and are encouraged by the positive momentum across key product initiatives including Reels, click-to-messaging Ads and AI including Advantage+ adoption," Sheridan said. 

Goldman Sachs rates Meta at "Buy" with a $384 price target, representing potential upside of 33% from current levels.

JPMorgan: "Buying pullback in shares"

JPMorgan analyst Doug Anmuth said Meta's focus on operating discipline was a positive based on its expense guidance for 2023 and 2024. JPMorgan has expected Meta to guide for 2024 expenses to be in the range of $96 billion to $102 billion, but instead they were between $94 billion and $99 billion.

"Meta is heavily scrutinizing investments and benefiting from its new data center architecture for both AI and non-AI workloads," Anmuth said. Potential supply constraints for GPUs could also be limiting Meta's expenses in the first half of 2024, according to the note.

"We believe Meta continues to execute well and remains disciplined, and we would be buying the pullback in Meta shares," Anmuth said.

JPMorgan rates Meta at "Overweight" and raised its price target to $420 from $400, representing potential upside of 45% from current levels.