Meta, the stock exchange believes: turning DeepSeek's challenge into an advantage

What, at first sight, appears to be a threat to business can instead turn into an advantage. Perhaps also thanks to a specific corporate approach to the topic at hand. This is how one can summarise the Meta Platforms with reference to DeepSeek. That is: the low-cost artificial intelligence (AI) chatbot recently launched from China.

The opportunity for the social network group - although the situation is uncertain and constantly changing - is signalled by the stock exchange itself. The stock - since the news spread - has risen on the Nasdaq by 5.97% (closing on 30/1/2025). This is a trend that, moreover, shows how the market has changed - since the metaverse - its valuation of the company (in the last year, the share has risen by 76%). The change, on closer inspection, is shown by the same difference in immediate reaction between the publication of the group's figures in the third quarter of 2024 and those of the latest quarterly report. Only three months ago, investors had turned up their noses. The company had posted higher-than-consensus quarterly revenue and profit. The fourth quarter guidance had also been robust. However, the increase in Capex, over the whole of 2024 and in the wake of the Artificial Intelligence (AI) venture, between 38 and 40 billion had raised doubts. The reasons? In particular, the fact that the operators, on the one hand, were still sunburnt from the hitherto unsuccessful journey into the metaverse; and, on the other hand, had only resumed betting on the company when it had refocused on its core business, claiming that 2024 would be the year of efficiency. At the moment, however, when there was an inkling that the film on the metaverse (shelling out billions with no certainty of remuneration) might be back on the agenda, investors sent out a signal. The stock, in the session following the publication of the data, gave up 4.1%. However, the narrative - referring to the specific topic of quarterly reports - has changed. Meta, in the last quarter of last year and similarly in the third quarter, reported higher-than-expected sales ($48.4 billion) and profitability ($8.02 diluted EPS). Estimates for the first three months of 2025, however, were rather weak. Not only that. Capitalised investments - in spite of the climate of uncertainty created by the arrival of DeepSeek Ia and then Alibaba - were confirmed to be between 60 and 65 billion dollars in the current financial year. Well: following the yardstick of late October, the market should have reacted negatively or with more caution. On the contrary, investors bought.

The stock exchange has changed its mind. How come? The answer is articulated. "First of all," answers Giacomo Calef, country manager of NS Partners, "we note the increase in the operating margin, which has risen to 48%, compared to 41% a year earlier. True! The indicator - in the third quarter of 2024 - was still at 43%. And, however, 'the dynamic clearly signals that the company also remains focused on operational efficiency and cost containment'. Since then, the fear that the film 'billions of money thrown out of the window' might be repeated has - in the eyes of the market - disappeared.

Not only that. Another motivation is related to the advent of Artificial Intelligence from the former Middle Kingdom. Several analysts have emphasised three aspects. The first is that Meta, unlike other big tech companies in the US, is unbalanced on a business model in which Ia is not so much in competition with third parties as it is exploited to optimise the business. In the last quarter, revenues rose in the wake of the increase in the average price in advertising, among other things. "The group's advertising recommendation and monetisation models," recalls Carlo De Luca, head AM of Gamma capital markets, "are also improving thanks to Ia. A condition 'which has a positive impact on advertising sales. So much so that the average turnover per user has grown by 16%', reaching $14.25 (it was $12.33 a year earlier).

The second theme, however, is related to the open source approach adopted by the company co-founded by Mark Zuckeberg. Here - this is the indication of the CEO himself - the fact that DeepSeek has also taken the path of the 'open' model is a positive factor as this can become a worldwide standard. In other words: Meta's idea is that its model can become a global industry reference.