To The Moon

On October 30, $Meta Platforms, Inc.(META)$ will release its Q3 2024 earnings report. Overall, the results are expected to be solid, offering enough reasons for the stock to maintain its strength—at least on the surface.

But beyond logic, other forces are driving the stock and market. Even though Meta might continue showing decent relative growth, analysts aren’t optimistic about further gains. Why? Revenue growth is slowing, expenses are rising, and the stock is already hitting record highs.

2025 Outlook: AI Investments and Growth Slowdown

Once 2025 comes into focus and massive AI investments start weighing on the balance sheet, things won’t be so easy. Revenue growth is naturally slowing after the strong gains of the past two years. Meta’s path forward? Finding new revenue streams.

Some options include expanding ad inventory in Reels or further monetizing WhatsApp. But the AI infrastructure they’ve built will also bring higher costs and depreciation.

When expenses grow faster than revenue, margins shrink. While no one expects Meta's margins to return to 2022 or early 2023 levels, it seems likely margins have peaked. This sets the stage for tougher profit growth in 2025.

AI Investments: A Double-Edged Sword

With capital spending on AI infrastructure from the past two years starting to depreciate and operational costs rising, expenses will stay elevated. These investments are crucial for keeping Meta ahead in the ad game but come with a hefty price tag.

Still, analysts remain bullish on Meta's AI potential. The company made a smart move by open-sourcing its large language models (LLMs) and integrating AI across its front-end and back-end. On the front-end, AI boosts user feedback; on the back-end, it enhances ad targeting. This fits Meta's business model naturally, much like how GPUs fit AI training and inference.

Competing Through AI: Meta vs. Rivals

Other giants like $Alphabet(GOOG)$ $Alphabet(GOOGL)$ and $Microsoft(MSFT)$ are trying to force generative AI into their products as enhancements or entirely new offerings. Meta is taking a different route, enhancing existing products through AI’s pattern recognition capabilities. And because of its focus, Meta can do it better.

To stay competitive, Meta has to keep investing in AI. Yes, this raises costs and hurts margins in the short term. But long-term, these investments should lead to greater operational efficiency.

With slower growth and rising costs ahead, lowering expectations is one thing. But pushing the stock to new highs? That's another story. These record highs align with key Fibonacci levels, signaling that the two-year rally might be coming to an end.

That's why, after earnings, the stock is more likely to drop than to keep soaring.