4 Reasons to Buy Meta Platforms Stock

After months of poor performance, Meta Platforms (NASDAQ:META) is finally bouncing back. Over the past four weeks, the company's shares have climbed 27%. The S&P 500 is slightly in the red over the same period. Still, Meta's shares remain down by about 1% over the past 12 months, and there may be more upside ahead for the tech giant. Let's consider four reasons why it's not too late to invest in Meta Platforms.

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1. Muse appears to be a hit

One reason why Meta's stock has lagged broader equities in recent months is that the company has failed to convince many investors that its artificial intelligence (AI) strategy is sound. True, AI-related initiatives have helped the company improve its advertising business, but it continued to spend large sums on AI infrastructure, which is partly why its earnings and free cash flow declined in the second quarter.

But that spending may be about to pay off. On Sept. 8, Meta released Muse, a personalized AI agent. Muse was an instant hit and quickly rose to the top of the list of the most downloaded iOS apps in the U.S. Muse is free to use up to a certain limit, though there is a paid tier for those who want more features. Meta could make some money from those subscriptions.

However, there is an even larger opportunity. Meta has indicated that it would make money from Muse by charging merchants a fee when the personalized AI agent helps its users make purchases. Provided Meta can attract a large number of users to Muse (it already had about 730,000 downloads after roughly five days on the app store), this could be a highly lucrative business.

And in all likelihood, Meta will continue to improve Muse over time, something its significant AI spending will enable.

2. Meta's new AI business

On Sept. 28, Meta announced that it was launching Meta Enterprise Platform, a new venture through which it will sell AI tools and software to other businesses. This is, yet again, a result of Meta's significant AI investments. The company's infrastructure spending enabled it to train advanced models and to build AI agents and tools on top of them, some of which it has used internally.

Now, Meta plans to make those tools available to other businesses. And although other companies are doing the same, Meta has an advantage. The tech leader already has a vast ecosystem of users, as well as many businesses with which it has worked for years to help them reach its users.

These long-standing relationships could help Meta hit the ground running and quickly access a large clientele with its new AI business. This could help boost the company's revenue over the medium term, while diversifying away from its core advertising operations, which still account for the lion's share of its sales.

3. Addressing its legal issues

Here's another reason Meta has lagged broader equities over the past year: The company has faced legal problems. Specifically, Meta is dealing with lawsuits alleging that its social media apps have harmed young users. And according to the lawsuits, Meta knew about these risks. However, Meta has settled many of the lawsuits brought by a bipartisan group of attorneys general from dozens of U.S. states and territories.

Meta agreed to pay up to approximately $18 billion in annual installments over a decade (with $5.3 billion of that total contingent on certain actions by YouTube and TikTok). The company will also establish stronger guardrails to protect teens on its social media apps. This isn't a catastrophic outcome for Meta Platforms. It generates well over $18 billion in profits annually.

And although there are more lawsuits against the company, resolving this major group of state claims was an important achievement.

4. The price is still right

Meta has, to a large extent, addressed two of its biggest challenges. It is showing that its AI spending wasn't just for fun, and it has settled many lawsuits against it. The company's medium-term prospects appear attractive, and even after its recent run of form, the stock doesn't seem prohibitively expensive. Meta is trading at 22.1x forward earnings, versus an average of 20.9x for information technology stocks. Meta is arguably worth a premium, considering the strength of its core advertising business and the several new opportunities at its disposal. At current levels, there may still be plenty of upside left.

Prosper Junior Bakiny has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.