Meta Platforms Stock Rose 25% in September. Is It Still a Buy in October?

Meta Platforms (NASDAQ: META). was one of Wall Street's best-performing stocks in September. It rose 25% during the month, turning around what had up to that point been a down year for the stock.

The major catalyst in the quarter was the launch of Meta Muse, an AI agent built for everyday use for the masses. This completely shifted the AI narrative around Meta's stock, causing the market to shift from bearish to bullish.

But with the calendar flipping to October, will the market still love the stock?

Image source: Getty Images.

Meta finally released a monetizable AI product

Previously, the biggest complaint investors had about Meta Platforms as an AI investment was that it seemed to be giving everything away for free, despite investing hundreds of billions of dollars into building AI data centers. With no obvious payoff for those investments in sight, investors were left scratching their heads about when and where the profits would come from.

This caused investors who were familiar with Meta's failed metaverse vision to experience déjà vu. As a result, the stock wasn't highly valued. But all of that flipped shortly after the launch of Muse.

Muse is one of the first AI agents built for everyday use. The AI agent can be tasked with multistep activities such as building a schedule, checking calendars, or booking travel on your behalf.

While it is technically free to use, the free tier has a relatively low monthly usage cap. Meta is betting that many people will find Muse useful enough that they will start burning through their tokens and eventually decide to pay for a subscription tier with a much higher ceiling. If that happens, the subscription services could lead to strong revenue and profit growth, which investors love.

The market sees the vision and is buying into it, which is why the stock had such a fantastic September. But what's ahead for October?

Late this month, Meta Platforms will report its third-quarter results, and Muse will likely be one of the primary topics of discussion. Investors will likely hear more about early adoption numbers and the long-term vision for this product. If the market likes what it hears, the stock could end the month strong. However, Meta no longer has the "cheap" factor going for it. While it was trading at bargain levels for some time, its September rally drove it back to a normal valuation range.

Meta's stock is no longer trading at a discount

Before its rally, Meta's stock traded at less than 18 times expected forward earnings -- near its lowest valuation of the past three years.

META PE Ratio (Forward) data by YCharts.

Today, it is trading toward the upper end of its usual valuation range. Still, there's room for more. While some of Meta's peers' price-to-earnings (P/E) ratios are currently being skewed by one-time gains on investments, the average big tech firm tends to trade in the high 20s to the low 30s times forward earnings valuation range.

That leaves plenty of room for upside if the market gets really bullish on Meta's prospects. Still, I don't see that happening until after its Q3 results are released, when the initial reception of Muse is accounted for.

As a result, I don't think we'll see a repeat of September for Meta's stock in October, but its future looks brighter than it has been in awhile. If Muse is widely accepted and becomes a popular subscription product, the stock will have a lot more potential for upside, because there isn't a ton of growth priced into it now at just 23 times forward earnings.

That could make Meta an AI stock worth buying for the long term, as it has one of the best consumer-facing platforms for AI deployment.

Keithen Drury has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.