Bank of America resets Meta stock forecast on deal with AMD
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Meta (META) stock has lost a little less than 1% in the past month, at the time of writing, Thursday morning, Feb. 26, according to Yahoo Finance. Meanwhile, the SPDR S&P 500 index (SPY) is up close to 0.6% in the same period. While the stock’s performance is fairly close to the S&P 500, it could have been better.The stock soared following its Q4 earnings report on Jan. 28. It closed at $668.73, and the following day it closed at $738.31, gaining about 10% in a single day.I covered the earnings in my article “Bank of America resets Meta stock price target after earnings.”However, following that initial positive reaction to a strong earnings report, the stock has been on a downward trend. Investors are concerned that the planned capex is too high.Meta assisted AMD in developing its Helios rack-scale system, which was unveiled last year. I wrote about Helios in my article “Analysts revamp AMD stock price after key conference.”The time has come for Meta to reap the benefits of that work. Bank of America says the Meta deal with AMD diversifies the supplier base and lowers costs.Photo by Julio Lopez on Unsplash Meta and AMD expand partnership to deploy 6GW of AMD GPUsMeta and Advanced Micro Devices (AMD) revealed on Feb. 24 that they are expanding their partnership with a 6-gigawatt agreement to power Meta’s AI infrastructure across multiple generations of AMD Instinct GPUs, paired with AMD EPYC CPUs.“We’re excited to form a long-term partnership with AMD to deploy efficient inference compute and deliver personal superintelligence,” said Meta CEO Mark Zuckerberg. “This is an important step for Meta as we diversify our compute. I expect AMD to be an important partner for many years to come.”More Tech Stocks:Morgan Stanley sets jaw-dropping Micron price target after eventNvidia’s China chip problem isn’t what most investors thinkQuantum Computing makes $110 million move nobody saw comingAMD has issued Meta a performance-based warrant for up to 160 million shares of AMD common stock, structured to vest as specific milestones associated with Instinct GPU shipments are achieved.Bank of America analysts Justin Post and Nitin Bansal updated their opinion on Meta stock following the announcement. I covered analyst opinions regarding the deal's impact on AMD stock in my article “Bank of America resets AMD stock forecast on deal with Meta.”Bank of America says Meta deal with AMD diversifies supplier base, lowers costsAnalysts noted that Meta did not change its fiscal year 2026 capex guidance, which is in the range of $115 billion to $135 billion. They estimate that the capex for fiscal year 2026 and 2027 will be $120 billion and $142 billion, respectively.Post said this multi-supplier strategy should increase Meta’s pricing leverage and help lower long-term compute costs. He noted that if AMD executes successfully and its stock appreciates above the warrant vesting thresholds, Meta could realize meaningful equity value, effectively reducing its net compute costs.Related: Meta makes drastic workforce decision after $73 billion in lossesAnalysts see Meta’s growing infrastructure enabling the company to expand beyond core advertising into AI subscriptions, enterprise offerings, or developer ecosystems over time.They added that they expect the company to expand usage of its own MTIA chips for training and inference in 2026 to further reduce compute costs.They noted that this deal also brings risks:Signals higher capex for a longer time periodTechnology transition riskPotential margin pressure riskIn a research note shared with me, Post reiterated a buy rating and the price target of $885 for Meta stock, based on 26 multiple of his estimate for GAAP EPS for 2027, plus net cash. “On a total company basis, including Metaverse investments, our valuation is at a slight premium to S&P 500, given Meta’s higher growth rate and AI opportunity,” he said. “Historically, Meta has traded at an average premium of 3pts to S&P 500.”Analysts noted downside risks for Meta:Decline in user activity from competitionPrivacy or data issues impacting revenue generationPotential for Wall Street to assign a negative value to Metaverse (RealityLabs)New regulations that impact monetizationRelated: Bank of America resets Meta stock price target after earnings