We recently published a list of 10 Trending AI Stocks in October. Since Meta Platforms Inc (NASDAQ:META) ranks 2nd on the list, it deserves a deeper look.

Tom Lee, Fundstrat co-founder, while talking to CNBC in a latest program, explained his bullish case for the market and why he believes the S&P 500 is headed to close the year “well beyond” 5,700.

“Bull markets are supported by a strong fundamentals and this is a case where not only has the economy survivie extremely high interest rates but the Fed is beginning to cut rates, and an economy that has been sort of languishing has been China. Now we have stimulus and what looks like some bazooka policies that are supporting that region, and we have a lot of cash on the sidelines. I think this is a formula for stocks to do pretty well the next three to 12 months, and that’s why we think that we would be well beyond 5700 before year-end.”

Lee said that he’s inclined to buy “risks outright” as he believes more upward momentum would come for stocks after the election.

“Small caps still have good fundamentals, earnings growth is accelerating, the media P/E is eleven times which is almost seven turns lower than the S&P so I think there is still case to be made that small-cap are starting a multi-year gain.”

For this article we picked 10 AI stocks that are making big moves on the back of latest news. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Meta Platforms Inc (NASDAQ:META)

Number of Hedge Fund Investors: 219

William Blair recently added Meta Platforms to its list of top picks. The social media giant stands out for its open-source approach and is finding new ways to monetize generative AI (GenAI).

“There are early signs of positive GenAI impacts for Meta Platforms Inc (NASDAQ:META), with significant upside opportunity via new GenAI products and potential CPM uplift,” said William Blair analyst Ralph Schackart. He also noted that Meta has considerable potential to scale and monetize bots using GenAI.

Meta Platforms Inc (NASDAQ:META) crushed past analyst estimates for its Q2 results, giving signs that the huge AI spending it’s doing would bear more results in the future.

The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.

But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.

Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:

“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.

We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text)

Overall, Meta Platforms Inc (NASDAQ:META) ranks 2nd on Insider Monkey’s list titled 10 Trending AI Stocks in October. While we acknowledge the potential of Meta Platforms Inc (NASDAQ:META), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.