David Tepper Doubles Down on Meta

Does the stock offer good value?

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Sep 24, 2023
  • David Tepper increases position in Meta to over 8%.
  • Meta reported strong revenue growth, reaching $32 billion in the second quarter.
  • Monthly active users on Facebook surpassed 3 billion for the first time.
  • Meta commits to open-source and AI initiatives, including the Llama-2 language model.
  • Scalability of AI-powered products remains a challenge for all companies.
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Meta Platforms Inc. (META, Financial), the company formerly known as Facebook, reported strong revenue growth in the second quarter of 2023. The company's total revenue reached $32 billion, representing an 11% increase compared to the same period last year. This growth was driven by increased engagement and improved monetization across its platforms.

Investor David Tepper (Trades, Portfolio), of the Appaloosa fund, added to his position in Meta, increasing his total portfolio weight to just over 8% for a position he started buying in March of 2016.


User engagement and future plans

Tepper’s investment in Meta is likely based on the Family of Apps segment, which includes Facebook, Instagram and WhatsApp, as it continues to experience significant growth in user engagement. In June, approximately 3.07 billion people used at least one of these apps on a daily basis, while approximately 3.88 billion people used them on a monthly basis. Facebook's monthly active users crossed the 3 billion mark for the first time, reaching 3.03 billion in June, a 3% increase compared to last year. Daily active users on Facebook were 2.06 billion, representing a 5% increase.

Looking ahead, Meta is optimistic about its ability to increase the value it provides to users and advertisers. The company is focused on leveraging advanced artificial intelligence techniques to improve content recommendations and is investing in new experiences for the future. Facebook is also working on improving the monetization efficiency of products like Reels and its messaging services. The company expects its third-quarter revenue to be in the range of $32 billion to $34.5 billion.

Meta and AI

Artificial intelligence-powered products, such as AI agents and generative AI features, have become increasingly important in enhancing user experiences and improving monetization in the Metaverse. Companies like Meta are investing heavily in AI technologies to drive growth and innovation in this space.

The use of AI agents in the Metaverse is revolutionizing the way people interact with different entities on a day-to-day basis. Unlike traditional AI systems, which rely on a single AI interface, the company believes there will be multiple AI agents focused on specific areas. These AI agents will help people connect around expression and creativity, facilitate connections with creators and enable interactions with businesses.

One of the key advantages of AI agents is their ability to automate and streamline interactions with businesses. Currently, human labor is required to handle customer interactions, which can be time-consuming and costly. However, with the introduction of AI agents, every business could have a virtual assistant that people can message and interact with. This would not only improve the efficiency of customer interactions, but also open up new opportunities for messaging monetization.

Generative AI features are another area of focus for the company in the Metaverse. These features leverage AI algorithms to enhance user experiences across various applications. For example, in advertising, generative AI can help advertisers run ads without needing to supply as much creative content. It can also fill in missing elements, such as resizing images to fit different formats. This not only saves time and resources for advertisers, but also improves the overall effectiveness of their campaigns.

AI technologies for ranking and recommendation systems

In addition to AI agents and generative AI features, Meta is also investing in AI technologies to power ranking and recommendation systems. These systems play a crucial role in content ranking and engagement growth, as well as monetization. By leveraging AI algorithms, the company can provide personalized recommendations to users, increasing user engagement and driving revenue growth.

However, the scalability of these AI-powered products remains a challenge. As they are relatively new, it is difficult to forecast how quickly they will scale and what capacity will be required. Meta is aware of this uncertainty and is carefully considering the amount of AI capital expenditure to bring online. It wants to ensure it has the necessary capacity in place to support rapid growth while also being mindful of cost efficiency.

Open-source initiatives: Driving innovation and collaboration in the AI community

CEO Mark Zuckerberg recently spoke about the company's commitment to open-source initiatives during a conference call. He highlighted the importance of open-source projects in driving innovation and standardization within the AI community. One such initiative that Meta is actively involved in is the development of the Llama-2 language model.

Llama-2 is an open-source project that aims to improve the safety, security and efficiency of AI models. By releasing Llama-2 as an open-source project, Meta is inviting the AI community to contribute their expertise and insights to enhance the model. This collaborative approach allows for a diverse range of perspectives and ideas, ultimately leading to better outcomes.

One of the key benefits of open-source projects like Llama-2 is the increased scrutiny and review they receive from the community. Open-source software tends to be more secure and safer due to the collective efforts of developers and researchers who identify and address vulnerabilities. By leveraging the power of the community, Meta can ensure that Llama-2 is robust and reliable, making AI applications safer for everyone.

Further, open-source projects like Llama-2 also drive efficiency improvements in AI models. The community's contributions can lead to advancements in areas such as quantization and model optimization, making AI models more efficient to run. This not only benefits individuals who can run powerful models on their laptops or local machines, but also translates into cost savings for companies like Meta, which invest heavily in AI infrastructure.

Partnership with Microsoft

To facilitate collaboration and ensure the widespread adoption of Llama-2, Meta has partnered with Microsoft Corp. (MSFT, Financial). While Meta does not have a public-cloud offering, the partnership with Microsoft allows it to leverage the existing infrastructure and reach a broader audience. However, the company has also implemented a business arrangement for the largest companies with public-cloud offerings. These companies will need to make a revenue-sharing agreement with Meta, ensuring that the benefits of Llama-2 are shared equitably.

While open-source initiatives like Llama-2 are essential for driving innovation and collaboration, Zuckerberg acknowledged there will always be a mix of open and closed AI models. Some companies rely on closed models as part of their business model, and there are valid safety concerns associated with completely open-sourcing highly capable AI models. However, Meta's commitment to open-source projects like Llama-2 demonstrates its belief in the power of collaboration and the positive impact it can have on the AI community.


Overall, the company's strong revenue growth in the second quarter reflects its ability to engage its massive user base and effectively monetize that engagement. With its continued focus on AI and the development of new experiences, Meta is well-positioned to sustain its growth and deliver value to both users and advertisers.

Meta's focus on AI agents, generative AI features and AI-powered ranking and recommendation systems demonstrates its commitment to driving innovation and staying ahead in this rapidly evolving space. As the Metaverse continues to gain traction, the integration of AI technologies will play a pivotal role in shaping its future.

The company's commitment to open-source initiatives, such as the Llama-2 language model, is driving innovation and collaboration in the AI community. By releasing Llama-2 as an open-source project, Meta is inviting the AI community to contribute their expertise, leading to improvements in safety, security and efficiency. This collaborative approach not only benefits Meta, but also the wider AI ecosystem. As the field of AI continues to evolve, open-source initiatives like Llama-2 will play a crucial role in shaping the future of AI and ensuring its responsible and ethical development.

The real value to Meta in this approach is that by creating open-source AI, it reduces the potential that any other organization is able to capture the AI market and create an unsurpassable moat.

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