JPMorgan lifts Meta target citing AI momentum

JPMorgan has shifted its stance on Meta Platforms, upgrading the stock from neutral to buy in a note released on Thursday. The bank raised its price target to $820, suggesting a potential 30 percent increase from the previous close. This move comes shortly after Meta unveiled its personal AI agent app, which is powered by the company's internal Muse Spark model family.

Analyst Doug Anmuth argues that these releases are only the beginning. He believes Meta is in the early stages of deploying frontier models and AI-driven products that extend beyond its traditional advertising business. According to the report, the new Muse AI agent has already seen strong early traction, reaching the top three spots in the US app store on its second day.

Early user traction signals demand

The initial performance of the Muse AI agent appears to validate the company's strategy. Anmuth notes that early usage rates are running at ten times that of training cohorts, indicating genuine user interest rather than just experimental curiosity. While monetization is not currently the primary focus for this specific app, it offers both free and paid subscription tiers.

The analyst suggests that if Meta is ready to capitalize on this, the potential addressable market could be in the trillions of dollars. This view is supported by recent data showing that AI-driven improvements in content recommendations and ad targeting are already enhancing the core advertising business, which remains the company's primary revenue driver.

Compute costs will strain cash flow

However, the success of these AI projects comes with a significant financial trade-off. As Meta scales its AI capabilities, the demand for compute resources will surge. Anmuth forecasts that this will place heavy pressure on the company's free cash flow in 2027 and 2028.

He estimates that Meta could face negative free cash flow of $65 billion to $75 billion per year during that period. It is important to note that this forecast does not account for any revenue generated from AI product monetization, meaning the actual financial impact could be mitigated if the new services generate sufficient income.

Long-term bets drive investment thesis

The JPMorgan upgrade rests on the belief that Meta's core advertising engine will continue to benefit from AI enhancements. Improvements in ad retrieval and engagement metrics are expected to provide a stable revenue base while the company invests heavily in its future AI roadmap.

Reporting by GN technics/ai (en-US) highlights that while the short-term cash flow outlook is challenging, the long-term upside potential of Meta's AI ecosystem is seen as a strong enough counterbalance to justify the higher valuation.