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Safely Betting on a Meta Breakout While Guarding Against Pullbacks

Meta Platforms (META) is positioning itself as a leader in artificial intelligence (AI) technology. This is demonstrated by its recent advancements in open-source large language models (LLM) and the integration of AI into its existing product suite. Although companies like OpenAI have traditionally led AI innovation, Meta’s LLaMA 2 models have garnered significant attention for their competitive performance in various benchmarks. Meta’s strategic focus on monetizing AI tools across platforms such as Facebook, Instagram, and WhatsApp provides it with a unique competitive edge. This commitment to revenue generation from AI distinguishes Meta from other firms that are still exploring AI’s potential without clear monetization strategies.

Recent chart analyses indicate strong performance for Meta, which has recently surpassed a key resistance level of $545. Additionally, its relative outperformance compared to the S&P 500 confirms a breakout to new all-time highs. With ongoing positive momentum and robust support, Meta appears well-positioned for further growth, particularly as it continues to innovate and integrate AI.

Furthermore, Meta exhibits impressive growth projections, with an expected future earnings per share (EPS) growth of 22% (compared to an industry average of 16%) and a revenue growth rate of 15% (compared to an industry average of 11%). What further sets Meta apart is its exceptional profitability, evidenced by an industry-leading net margin of 34% against the industry average of 24%. Given these growth and profitability metrics, Meta appears undervalued, presenting a compelling risk/reward profile for long-term investors seeking to capitalize on its AI-driven revenue potential.

For investors looking to capitalize on Meta’s potential upside while managing risk, one suggested strategy is selling a November 15, 2024, $575/$530 put vertical spread at a $16.87 credit. This involves selling the November 15, 2024, $575 put for $31.45 and buying the November 15, 2024, $530 put for $14.58. The trade enables profit if Meta remains above $575 by expiration, with a maximum potential reward of $1,687 and a maximum risk of $2,813, thus offering a solid risk/reward profile. The breakeven point of this trade is $558.13, meaning losses will only incur if Meta closes below this level by expiration.

DISCLOSURES: The positions held by CNBC Pro contributors are their own opinions and do not reflect the views of CNBC, NBC Universal, their parent company, or affiliates. This content may have been previously disseminated through various media channels. The above content is subject to terms and conditions and privacy policy and is provided for informational purposes only. It does not constitute financial, investment, tax, or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect individual unique personal circumstances. Before making any financial decisions, individuals should strongly consider seeking advice from their financial or investment advisor.

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