Will Meta’s AI Goals Endure Under Trump’s Tariffs?
Overview of Meta Platforms’ AI Investments
Meta Platforms, known for its significant investment in artificial intelligence (AI), has attracted considerable attention on Wall Street. However, experts have raised concerns regarding potential obstacles that may impact its ambitious projects. Former President Donald Trump’s tariff proposals have sparked worries about the availability and costs of essential materials needed for new data centers, prompting a noticeable decline in Meta’s stock price, which has dropped by over 19% in the past month. This situation has made investors increasingly cautious as they monitor Meta’s operations, particularly given the company’s hefty investments in both AI technology and the metaverse.
Meta’s Upcoming Investment in Wisconsin
Recently, it was reported that Meta is preparing to funnel nearly $1 billion into constructing a new data center in central Wisconsin. Despite these big plans, both Meta and the Wisconsin Economic Development Corporation have refrained from commenting on the specifics of the investment.
In a broader context, Meta has earmarked up to $65 billion in 2023 to expand its AI infrastructure. This decision comes in response to mounting pressure from investors keen on seeing substantial returns from AI initiatives.
Impact of Tariffs on Meta’s AI Ambitions
The prospect of new tariffs could significantly influence Meta’s plans. Tariffs imposed on vital components such as steel, aluminum, and electronic equipment may lead to increased construction costs for Meta’s data centers. Such financial pressures could slow down the company’s AI development initiatives and potentially affect profitability.
Moreover, the introduction of higher costs alongside trade restrictions could delay crucial projects. This situation poses a double threat: the cloud of tariffs may not only strain Meta’s operational costs but could also hamper its main revenue stream—advertising. In the last quarter of 2024, advertising accounted for an impressive $46.8 billion of Meta’s revenue, representing roughly 96.7% of its total income.
A survey conducted by the Interactive Advertising Bureau revealed that 94% of U.S. advertising buyers expressed concerns that tariffs might lead to reduced ad spending, signaling potential trouble for Meta’s advertising revenue in the near future.
Resilience of Meta’s Advertising Strategy
Despite the challenges posed by tariffs, some analysts contend that Meta is better equipped to weather a downturn in advertising. Notably, John Blackledge, a highly rated analyst at TD Cowen, suggests that Meta’s advertising model, which emphasizes direct response ads, will remain robust. Direct response ads are crafted to motivate immediate actions from consumers, such as signing up for newsletters or making purchases, making them more resilient in tougher economic climates.
In a recent assessment, Blackledge lowered his price target for META stock from $785 to $725 while still maintaining a buy rating.
Analysts’ Perspectives on META Stock
Currently, META stock holds a consensus rating of “Strong Buy” from a group of 47 Wall Street analysts. This designation stems from 43 buy ratings, three hold ratings, and one sell rating assigned over the last three months. The average price target for META stock is approximately $756.98, suggesting a 50% increase from the current price.
Investors are closely watching Meta’s progress as the company strives to navigate potential challenges while continuing its investments in AI and advertising.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult a financial advisor before making investment decisions.
