#SocialStocks: Meta introduces new AI chip and downplays impact on elections

Welcome to “#SocialStocks,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

AI IMPACT: Meta Platforms (META) unveiled a new chip for artificial intelligence workloads, in particular to power the company’s ranking and recommendations ad models, Eric J. Savitz of Barron’s reported. The chip is the second generation of a chip called MTIA, an acronym for Meta Training and Inference Accelerator, the author noted. Meta’s announcement follows one day after new processor announcements from both Alphabet (GOOGL) and Intel (INTC), as more companies step up their efforts to meet the growing hunger for AI computing resources. While Nvidia (NVDA) remains the dominant player in the market, cloud-computing vendors like Amazon (AMZN), Google, and Meta are increasingly designing some of their own chips to supplement Nvidia’s graphics processing units, or GPUs – and, in some cases, to provide more efficient alternatives, the publication added.

In London, Meta executives downplayed the negative impact of AI on elections, touted open-source AI, and confirmed Llama’s next version will arrive by next month, according to Bloomberg’s Mark Bergen. “So far, it’s been very striking how little these tools have been used on a systemic basis to try to subvert or disrupt these elections,” Nick Clegg, Meta’s president of global affairs, said at an event on the company’s AI strategy in London on Tuesday.

OpenAI, Google and Meta ignored corporate policies, altered their own rules and discussed skirting copyright law as they sought online information to train their newest artificial intelligence systems, The New York Times’ Cade Metz, Cecilia Kang, Sheera Frenkel, Stuart A. Thompson and Nico Grant noted. OpenAI transcribed 1M+ hours of YouTube videos through Whisper and used the text to train GPT-4, according to the report, while Google also transcribed YouTube videos to harvest text.

Additionally. Meta last year debated buying a publisher like Simon & Schuster for AI training data and weighed using copyrighted online data even if that meant facing lawsuits, according to NYT.

TIKTOK NOTES: TikTok Notes, a new photo and text-sharing platform developed by the Beijing-based social media company, seems to be taking a page out of Instagram’s playbook, Brooke Steinberg of New York Post said. The app bears a resemblance to Instagram’s platform and shares the same name as one of Instagram’s features. Notably, some TikTok users have encountered a pop-up notification when sharing photo posts, informing them that their photos will also be shared on a forthcoming platform called TikTok Notes, with an option to decline. In summary, TikTok Notes appears to be a direct competitor to Instagram, aiming to capture the essence of photo sharing and text-based content in a familiar format. “Your photo posts will be shown on TikTok Notes,” the pop-up reportedly said. “TikTok Notes, a new app for photo posts, is coming soon! Your existing and future public TikTok photo posts will be shown on TikTok Notes,” the notification read. “If you prefer not to show your public TikTok photo posts on TikTok Notes, turn this off now.” There is yet to be an official date for the new app to launch.

ANOTHER STATE ACTS: The Maryland Legislature passed two privacy bills aimed to restrict tech platforms from harvesting and using the personal data of consumers and young people, despite the pushback received from Amazon, Google, and Meta, Natasha Singer of The New York Times wrote. The Maryland Online Data Privacy Act was one of the bills and would impose restrictions on how companies may collect and use personal data of consumers in the state. The other bill, Maryland Kids Code, would prohibit certain media, games, and online platforms from tracking people under 18 and from using manipulative techniques.

CASH COW: Instagram brought in almost 30% of Meta Platforms’ revenue in the first half of 2022, Kurt Wagner and Leah Nylen of Bloomberg reported, citing documents released in the Federal Trade Commission’s antitrust suit to break up the company. Instagram produced $22B of revenue in 2020, or 26% of Meta’s total sales, and $32.4B in 2021, 27% of the company’s sales, according to Bloomberg. It posted $16.5B of sales in the first six months of 2022. The numbers confirm that Instagram is growing at a faster pace than other parts of Meta’s social networking universe, Bloomberg points out.

PUSH BACK: Meta has pushed back on the U.S. Federal Trade Commission’s, FTC, efforts to amend its 2020 privacy statement, arguing it revealed two flaws in its kids chat app voluntarily and received no complaints from parents, Leah Nylen of Bloomberg wrote. In filings recently made public, Meta said it discovered a bug in its Messenger Kids app in 2019 that allowed some children to chat with users not approved by their parents. The bug lasted less than 24 hours and affected less than 2,000 kids, the filing said. Meta also discovered and fixed a similar issue while fixing the last bug, which related to adding unapproved contacts to video calls.

DOWN: WhatsApp experienced a global outage on April 3, preventing users from exchanging messages, 9to5Google’s Ben Schoon noted. Facebook Messenger and Instagram also experienced issues, according to the report. The WhatsApp outage was resolved within an hour.

SHARE SALE: In a regulatory filing, Meta Platforms disclosed that its general counsel Jennifer Newstead sold 585 shares of common stock on April 2nd in a total transaction size of $283.7K.

ANALYST COMMENTARY: TD Cowen analyst John Blackledge raised the firm’s price target on Meta to $590 from $500 and reiterated a Buy rating on the shares. The firm raised their 1Q24 and 2024-2029 revenue estimates by 1%-4% annually given a positive Digital ad check and their 1Q24 survey data which implies rising Instagram engagement.

Oppenheimer increased its price target on Meta Platforms to $585 from $525 and maintained an Outperform rating on the shares as AI driving revenue upside. The firm is also increasing Q1 to high-end of guidance, raising rest of 2024 and increasing 2025 revenue to +13% vs. prior +12%. While historical seasonality still suggests upside to the second half of 2024, the firm’s model now implies 337bps of share gains vs. 6-year average of 305bps, indicating significant gains built-in. To re-rate to an “AI multiple,” or 25-30-times, investors would need to believe EPS could grow over 25% in 2025, representing $3B of incremental net income through stemming losses in Reality Labs or driving 2025 revenue growth to 16%, representing 700bps share gains, which seems unlikely, Oppenheimer says.

Jefferies raised the firm’s price target on Meta to $585 from $550 and kept a Buy rating on the shares. Based on an updated market share analysis, the analyst believes the social media giant could capture 50% of incremental industry advertising dollars in 2024, which would be its highest ever and well above its 33% in 2023. In 2024, Meta’s advertising revenue could grow 20%, above the 9% industry average, as scaling generative artificial intelligence ad tools supplement the company’s “already best-in-class” Advantage+ product suite, the analyst tells investors in a research note. Jefferies believe Meta’s market share gains will further accelerate in 2024. It now estimates that in 2024 Meta’s ad business could outgrow Amazon’s for the first time since 2015.