Key points
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Most Wall Street analysts believe Meta Platforms and Atlassian are undervalued, with some predicting substantial upside potential for the shares.
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Meta uses AI to increase engagement and improve ad performance on its social media sites, and the company has an ambitious vision for smart glasses.
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Atlassian’s work management software is the industry standard among developers, and early evidence suggests AI coding tools could increase the number of developers.
Barton Crockett of Rosenblatt Securities believes Metaplatforms (NASDAQ: META) is undervalued at the current share price of $653. His price target of $1,144 per share implies 75% upside potential.
Keith Weiss op Morgan Stanley believes Atlassian (NASDAQ: TEAM) is undervalued at the current share price of $76. His price target of $290 per share implies an upside potential of 280%.
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You should never place too much importance on individual forecasts, but most analysts believe Meta and Atlassian are undervalued. Meta’s median price target of $852 per share implies a 30% upside, and Atlassian’s median price target of $150 per share implies a 97% upside.
Here’s what investors need to know about these artificial intelligence (AI) stocks.
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1. Metaplatforms
Meta owns the three most popular social media platforms as measured by monthly active users: Facebook, Instagram and WhatsApp. This gives the company actionable insight into consumer behavior and interests, which supports precise content and ad targeting. In turn, it has become the second largest adtech company in the world.
Meta has doubled down on its strong market presence by investing heavily in artificial intelligence products and capabilities. The company has developed machine learning models that retrieve, rank and recommend content, as well as tools that help advertisers create and optimize campaigns. It has even designed custom chips to train and run the underlying models.
Meta shares are down 17% from their all-time highs, mainly as investors worry the company is spending too much money on AI. But those investments have had a tangible impact on the company. Revenue rose 24% in the fourth quarter as more engaging content drove an 18% increase in ad impressions, and better ad performance allowed the company to charge 6% more per ad.
Meanwhile, Meta plans to develop a super intelligence system that can be integrated into smart augmented reality (AR) glasses. The company already dominates the smart glasses market, but the market itself is still in its early stages. Ultimately, CEO Mark Zuckerberg says AR glasses, powered by super intelligence, could replace smartphones as our primary computing devices.
The stock currently trades at 28 times earnings, a very reasonable valuation for a company with earnings expected to grow 21% annually through 2027. Long-term investors should feel comfortable buying a small position in this stock today.
2. Atlassian
Atlassian develops work management and collaboration software. The company is best known for Jira, a product that is especially popular among software developers and operations (DevOps) teams. However, Atlassian also develops work management tools for non-technical teams (e.g. marketing), as well as IT service management software.
Consulting firm Gartner recently recognized Atlassian as a leader in DevOps platforms and collaborative work management software, saying brand recognition among software developers offers significant opportunity to drive adoption among non-technical teams. And Forrester research recognized the company’s leadership in enterprise service management platforms.
Atlassian shares are down 78% from their all-time highs, mainly as investors worry that AI code generation tools will replace developers, reducing demand for DevOps tools like Jira. But Morgan Stanley analysts argue that AI will have the opposite effect. “The productivity unleashed by AI will expand the developer pool and drive a wave of app modernization initiatives that support the growth of developer positions.”
Michael Cannon-Brookes, CEO of Atlassian, has expressed a similar belief, and labor market data shows that companies are increasingly willing to hire developers. Last week, Goldman Sachs Analysts wrote: “The number of software development job openings on Indeed has increased 11% over the past year, which is significantly higher than the number of job openings in the broader labor market.”
Additionally, Atlassian is responding to the demand for artificial intelligence with Rovo, a suite of AI capabilities for chat, search and coding. Rovo recently reached 5 million monthly active users, more than 40% more than the previous quarter. Looking ahead, Morgan Stanley sees Atlassian as one of the companies best positioned to benefit from AI agents.
The stock currently trades at 17 times adjusted earnings, a relatively cheap valuation for a company with adjusted earnings up 27% in the most recent quarter. Moreover, Wall Street estimates that adjusted earnings will grow 19% annually through 2027. Atlassian is a bargain at its current price.
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Trevor Jennevine has no positions in any of the stocks mentioned. The Motley Fool holds and recommends positions in Atlassian, Goldman Sachs Group, and Meta Platforms. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
