Meta's Stock Has Rocketed Over 30% in the Past Month. Here's How the Embattled "Magnificent Seven" Company Completely Flipped the Script

For much of the year, Meta Platforms (NASDAQ: META) struggled to gain traction. As investors began to question hyperscalers' massive capital expenditures on artificial intelligence infrastructure and the returns they would reap, Meta's stock sold off because the company failed to show evidence of strong returns from the high capex.

Then the company announced a landmark settlement with most U.S. states in a lawsuit alleging the platform's features addicted teens and children, leading to mental health issues. While the $18 billion fine over the next five years is not considered a big deal, Meta agreed to make significant changes to its platforms for people under 18 to curb their usage.

While these factors pressured the stock earlier this year, Meta has rocketed nearly 32% higher over the past month (as of Sept. 27). Here's how Meta flipped the script.

Image source: The Motley Fool.

Your own personal muse

As I mentioned above, investors this year have been much more skeptical of the hyperscalers' plans to spend hundreds of billions on AI capex, especially as it has begun to turn several hyperscalers' free cash flow negative.

In its second quarter, Meta guided for full-year capex of $130 billion to $145 billion. The stock sank, however, after the company's earnings per share came in below Wall Street estimates and Meta provided weak third-quarter revenue guidance.

So what changed?

Meta rolled out its personal AI agent, Muse, which can complete a variety of tasks for a user, including making online purchases, setting up reservations and travel plans, managing goals, managing personal subscriptions, and even making personalized recommendations and decisions based on a person's data.

Recently, Muse became the top free app in Apple's U.S. App Store. Ben Thompson, who launched the popular tech and business website Stratechery, called Muse, "by a significant margin, the best and most approachable personal agent product I have tried."

"Meta continues to move toward superintelligence with Muse off to a strong start, quickly iterating, improving, and expanding, with the potential to bring an extremely capable personal agent to billions of users," JPMorgan Chase analyst Doug Anmuth wrote in a recent research note. "While it is still early, we believe that Muse has the potential to become the most widely used consumer AI application since ChatGPT."

Anmuth reiterated his overweight rating on the stock and raised his price target from $820 per share to $920, implying about 22% upside from current levels. Like other large language models (LLMs), Muse can be used for free but also offers monthly subscriptions with higher usage limits, including $20/month and $100/month options, showing a clear path toward monetization.

Meta is now in the game, but things can change quickly

Agentic AI, automated systems that can complete tasks with very little human intervention, has become the hottest area of AI, and Muse appears to have taken the lead with one of its LLMs/agents that is standing out in an already-crowded market.

So it's in the game, which is an impressive feat in itself. But investors should remember that the LLM space can change quickly. Anthropic and OpenAI regularly seem to trade places among the top of the more general LLM space.

Meta Muse is likely to face competition, but its ability to rise so quickly since launch is a strong predictor of its potential and eerily reminiscent of ChatGPT's dramatic rise. Additionally, the fact that Muse is from a proven, longtime, large tech player may also carry some weight in terms of credibility.

The situation shows that regardless of how much a company is investing in AI, or even if its free cash flow is trending in the wrong direction, the product is king in the AI boom. If a company can build an AI agent that strongly resonates with consumers, investors will buy into that thesis.

Meta's nearly 32% rise over the past month is evidence of that.

JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, and Meta Platforms. The Motley Fool has a disclosure policy.