META: AI Potential vs. Legal Hurdles – What’s the Trade?
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Shares of Meta Platforms, Inc. (Ticker: META) have been quite the rollercoaster in 2024. To steal a phrase from England, it’s been something of a “gap year” for the stock.
Meta, Facebook’s parent, gapped up on the back of blowout fourth-quarter earnings, only to do the opposite when the company’s first-quarter numbers crossed. But ever since that late-April nosedive, the stock has shown impressive resilience. As the chart below illustrates, Meta has clawed its way back, climbing from $420 to over $500—helped both by general strength in the Nasdaq-100 Index* and growing optimism over the firm’s approach to artificial intelligence (AI).
From a technical perspective, the stock has now re-taken former support around $480, as well as the crucial 50-day moving average*—which interestingly sits around the same level.
Below is a daily chart of META as of June 7, 2024.
Source: StockCharts.com, June 7, 2024.
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
AI: Meta’s New Friend?
When most people think about the outlook for Meta, their mind goes to user trends for Facebook and Instagram. This makes sense, as social media advertising forms the bulk of the company’s revenues, and more users equals more profits. But now there’s a relatively new potential growth catalyst: artificial intelligence (AI).
As The New York Times recently pointed out, under the direction of Mark Zuckerberg, Meta is winning over Silicon Valley with its approach to AI. Last July, it released an open-source large language model (LLM) called Llama, which has been a hit with AI coders.
What’s the thinking behind Meta’s AI strategy? To quote The New York Times: “As more developers use Meta’s software and hardware tools, the more likely they are to become invested in its technology ecosystem, which helps entrench the company.”
Bulls on Meta believe the company can capitalize on the AI boom and will be looking for further confirmation that the tech community is adopting its software.
Legal Issues: Reason to Unfriend the Stock?
It’s not all sunshine and roses for Meta. The company is facing legal and regulatory issues which could end up hitting the bottom line and the stock:
- CNN reports that a Palestinian-American alleges he was fired as an Instagram engineer because of his background and for raising concerns about the company’s handling of a prominent Palestinian war photographer’s Instagram account.
- Several schools in Canada are suing Meta, claiming its platforms are intentionally compulsive and have disrupted children’s learning, CBC News reports.
- The Federal Trade Commission sued Meta in 2020 over its acquisition of Instagram, alleging the company is a social media monopoly. This case could come to a head in the second half of 2024.
Don’t Forget Earnings
Meta is expected to report second-quarter earnings on July 24. Consensus forecasts currently are for profits of $4.66 a share, up from $3.23 in the year-ago quarter, according to Nasdaq. Bulls obviously want a “repeat beat.” Bears, on the other hand, could punish the stock if profits are strong but sales guidance is weak.
Friend or Foe: Here’s How to Play Meta
For Meta bulls, Direxion recently added the Direxion Daily META Bull 2X Shares (Ticker: METU) to its innovative lineup of leveraged and inverse single-stock ETFs. This leveraged ETF seeks daily investment results, before fees and expenses, of 200% of the performance of the common shares of Meta Platforms, Inc.
Bears, meanwhile, can express their negative view on the stock with the Direxion Daily META Bear 1X Shares (Ticker: METD). This unleveraged inverse ETF seeks daily investment results, before fees and expenses, of 100% of the inverse (or opposite) of the performance of the common shares of Meta Platforms, Inc.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
The Nasdaq-100 Index is comprised of 100 of the largest and most innovative non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
The Funds have derived all disclosures contained in this document regarding Meta Platforms, Inc. from publicly available documents. In connection with the offering of each Fund’s securities, neither the Funds, the Trust, nor the Adviser or any of its respective affiliates has participated in the preparation of such documents. Neither the Funds, the Trust nor the Adviser or any of its respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding Meta Platforms, Inc. is accurate or complete. Furthermore, the Funds cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of Meta Platforms, Inc. have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning Meta Platforms, Inc. could affect the value of a Fund’s investments with respect to Meta Platforms, Inc. and therefore the value of the Funds.
Technology Sector Risk — The market prices of technology related securities tend to exhibit a greater degree of market risk and sharp price fluctuations than other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling and dramatically lower market prices. Technology securities may be affected by intense competition, obsolescence of existing technology, general economic conditions and government regulation and may have limited product lines, markets, financial resources or personnel.
Meta Platforms, Inc. Investing Risk — Meta Platforms, Inc. is subject to a number of risks related to: its product offerings; business operations and financial results; government regulation and enforcement; the ability to collect and use consumer data; data, security and intellectual property; and the dual class structure of the company’s common stock, which limits the ability of shareholders to influence corporate matters.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with a Fund concentrating its investments in a particular security, industry, sector, or geographic region which can result in increased volatility. A Fund's investments in derivatives such as futures contracts and swaps may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments, including imperfect correlations with underlying investments or the Fund's other portfolio holdings, higher price volatility and lack of availability. As a result, the value of an investment in a Fund may change quickly and without warning. Risks of the Funds include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Market Risk, Industry Concentration Risk, Cash Transaction Risk, Indirect Investment Risk, and risks specific to the technology sector and internet company industry. Additional risks include, for the Direxion Daily META Bull 2X Shares, Leverage Risk and Daily Correlation Risk, and for the Direxion Daily META Bear 1X Shares, Shorting or Inverse Risk as well as Daily Inverse Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Funds.