Meta (META.US) is using "accounting magic" this year, and profits are expected to increase significantly! Stock prices are expected to break through $900.

Last month, the social media company Meta Platforms (META.US), which includes Facebook and Instagram, made a small adjustment on a financial detail level, but this imperceptible adjustment could potentially increase the tech giant's profits by billions of dollars this year. This adjustment was not due to the release of new products or significant cost reductions, but rather a modification to the accounting formula used to measure the depreciation of its expensive artificial intelligence infrastructure. This minute adjustment was disclosed in the social media giant's financial report materials on January 29, extending the useful life of certain artificial intelligence servers and network infrastructure assets from previously four to five years to five and a half years. Although this may sound insignificant, considering the substantial investment in these relatively short-lived assets, the impact of this adjustment on corporate profitability will be significant. Therefore, the expected increase in profits is likely to further boost Meta's valuation, propelling the stock price towards Wall Street's most optimistic target price of $950. According to calculations based on Meta's financial disclosures, this small detail adjustment is expected to reduce the company's depreciation costs by approximately $2.9 billion in 2025, representing nearly 4% of the annual estimated pre-tax profit. With Meta's management led by Mark Zuckerberg planning to increase capital expenditures by up to 75% this year to expand its AI capabilities, as well as implementing significant layoffs of underperforming employees while recruiting expert talent in the AI field to lead the AI race, the impact on Meta's profits in 2026 will be even greater. This change also highlights how tech companies are addressing the brief lifespan of the hundreds of billions of dollars' worth of new AI chips and high-performance servers purchased to support their AI computing power services. Meta now hopes to take measures to extend the lifespan of these devices beyond their initial expectations. "There could be very good reasons for extending the lifespan based on real-world experience, which would reduce depreciation in the short term and significantly improve actual profits for the company," said Ravi Gomatam, a partner at Zion Research Group, a tax and accounting firm. Susan Li, the CFO of Meta, stated in a recent earnings call with analysts that the company is "increasing operational efficiency by extending the lifespan of AI servers and related high-performance network equipment." A representative of Meta declined to comment. Meta is not the only tech company that has altered its depreciation schedule and subsequently affected actual financial results. In 2022, another tech giant, Microsoft Corporation (MSFT.US), extended the lifespan of servers and network equipment from four years to six years. Similarly, in 2023, Oracle Corporation (ORCL.US) extended the expected lifespan of its core hardware equipment from four years to five years. However, other tech companies have taken a completely opposite approach. Amazon.com, Inc. (AMZN.US) stated this month that the lifespan of its devices is continuously shrinking, from six years to five years. The company indicated in a document that this change took effect on January 1 and will reduce operating profit by approximately $700 million. Unlike real estate assets whose depreciation is spread out over decades, the value of computing equipment and network devices depreciates much faster. The reason is simple: the value of buildings usually remains stable over the long term, whereas the rapid pace of technological advancement means that even the newest models will become obsolete within a few years, much like an old iPhone. "This is the top number they can adjust as it's not a cash outlay," said accounting expert and communication author Francine McKenna. "This is a very important issue in capital-intensive and tech-reliant companies because handling it well will bring significant competitive advantages." With tech giants like Meta, Microsoft Corporation, Amazon.com, Inc., and Alphabet Inc. Class C (parent company of Alphabet Inc.) committing to increasing capital expenditures by hundreds of billions of dollars this year, these escalating depreciation costs may increasingly weigh on profits in the coming years. This is why Meta, with an estimated capital expenditure of up to $65 billion this year, is eager to update its depreciation formula, as Zuckerberg and other management aim to boost revenue performance driven by AI super trends while also considering the actual interests of the company's common stockholders. According to data compiled by Bloomberg, these four tech giants are expected to spend approximately $300 billion on capital expenditures in 2025, significantly higher than the $217 billion spent in 2024, with the majority of it going towards AI computing infrastructure, focusing on AI GPUs, AI ASICs, and high-performance networking hardware. Strategists Ohsung Kwon and Savita Subramanian from Bank of America Corp. wrote in a research report on February 10 that AI-related spending is expected to reduce EBITDA margins for these companies by 1.6 percentage points in 2026 compared to the fourth quarter of 2024. Meta's stock price has hit a record high with 17 consecutive days of gains, leading the "Big Seven Giants" comprehensively. However, all of this does not seem to have caused any level of concern among Meta investors, as they have been focused on Meta's much stronger AI revenue expectations compared to Microsoft Corporation, Amazon.com, Inc., and Alphabet Inc. Class C, especially the potential strong growth expected from "AI + digital advertising" and the "Meta AI ecosystem".The stock price of A has set a new record of rising for 17 consecutive trading days, and is expected to continue to set new records this week.The so-called "Magnificent Seven," which occupy a high weight in the S&P 500 Index and NASDAQ 100 Index, include Apple Inc., Microsoft Corporation, Alphabet Inc. Class C, Tesla, Inc., NVIDIA Corporation, Amazon.com, Inc., and Meta Platforms, the parent company of Facebook. They are the core driving forces behind the record highs of the S&P 500 Index. Looking at the entire US stock market, the seven tech giants have been leading the entire US stock market since 2023. With their strong revenue brought by AI, solid fundamentals, continuous strong free cash flow reserves, and expanding stock buyback programs, they have attracted funds from around the world. However, this year, there has been a fundamental change in the logic of the seven giants leading the US stock market, with the stock performance of all the tech giants except Meta significantly underperforming the S&P 500 Index. Conrad van Tienhoven, a portfolio manager at Riverpark Capital, said, "I have long believed that Meta, other than NVIDIA Corporation, is the biggest beneficiary of AI. I think more and more people are starting to accept this view." "Companies like Microsoft Corporation and Alphabet are facing questions about when they will see returns on their massive investments in AI. Meta's investment in AI solutions has immediately impacted its advertising positioning and business valuation model, resulting in faster growth, higher average revenue per user, and laying the foundation for other AI monetization paths." Conrad van Tienhoven said. According to top strategists from Barclays PLC Sponsored ADR and Morgan Stanley, the core source of the major cracks in the logic of the US stock market bull market lies in the Federal Reserve's decision to pause interest rate cuts and the continuous pressure on the valuations of large tech stocks from the "low-cost AI shock" brought by DeepSeek. The strategy analysis team at Barclays PLC Sponsored ADR recently stated that now is the best opportunity to shift to stock markets outside the US, especially shorting the US stock market and buying European stocks. As the "DeepSeek low-cost AI storm" sweeps the globe, investors are starting to strongly question whether the US tech giants' AI spending frenzy is reasonable. With expenditures in the billions of dollars, compared to the mere million-dollar costs of DeepSeek, US tech stock investors are not only shocked but also furious at the erosion of shareholder profits by unreasonable expenditures. Due to investors' concerns that the "low-cost AI large model computing power paradigm" led by DeepSeek will significantly reduce AI GPU orders from tech giants in the short to medium term, NVIDIA Corporation's stock price plummeted nearly 17% on January 27, with a market capitalization loss of $589 billion in a single day, the largest scale market value loss in US stock market history. However, investors remain confident in Meta's information and are increasingly optimistic about Meta's AI revenue expectations under the wave of AI applications ignited by DeepSeek due to Meta's extremely large active user base. The market sees Meta as likely to achieve a huge AI revenue scale: over 3 billion active users A capital expenditure of up to $65 billion in 2025 means that the company will continue to invest heavily in purchasing NVIDIA Corporation (NVDA.US) AI GPUssuch as the newly launched Blackwell architecture AI GPU and earlier versions of the Hopper architecture GPUas well as custom AI chips developed in conjunction with Broadcom Inc. (AVGO.US) (so-called AI ASICs), to provide massive training-end AI computing power support for its open-source AI large model LIama updating and iteration, and also massive reasoning-end AI computing power support for its globally popular AI application covering over 3 billion usersMeta AI. Last summer, Zuckerberg publicly stated that Meta and its competitors may be over-spending on AI, but the risk of losing billions of dollars is much better than missing out on a historic change in the human technology field. In the digital advertising placement field that Meta relies on, the powerful open-source AI large model launched by Meta, with 3 billion users, and a variety of generative AI auxiliary software tools, drive advertisers to reach a larger potential user base, providing advertisers on Meta and users with new AI-based ad recommendation experiences, which is also an important logic that Wall Street expects Meta's stock price to continue to rise. Digital advertising placement is the core revenue engine of Meta, with 3 billion users as the cornerstone, Meta's AI ad assistant tools, and Meta AI have helped Meta's advertising business revenue grow beyond expectations for multiple quarters.More and more businesses are beginning to use the Meta advertising deployment tool on a large scale. The main logic behind this is that with the support of Meta AI and AI chat Siasun Robot&Automation, advertisers hope to use Meta AI to accurately reach a larger potential user base (after all, Meta's software ecosystem has over 3 billion users). Therefore, research data shows that most advertisers plan to increase their advertising spending or maintain spending on the Meta digital advertising platform. Therefore, Meta's exclusive artificial intelligence ecosystem may help Meta continue to achieve stronger-than-expected performance in the fourth quarter and continue to take a positive growth trajectory in 2025 and beyond. Wall Street investment institutions recently praised Meta's artificial intelligence large model Llama open source model, which is driving global developers to adopt higher levels of artificial intelligence technology on a larger scale, praising that this open source model is inadvertently starting to establish a unique artificial intelligence ecosystem for Meta.The Meta management hopes that more third-party developers will use Meta AI Studio to develop diverse AI chatbots for global enterprises and creators. These chatbots will be designed for use by businesses and creators to communicate and interact with users on Meta's applications (such as Facebook, Instagram, etc.). In short, Meta encourages third-party developers to utilize its platform's AI tools and resource libraries to develop AI chatbots that facilitate effective communication between different users, thereby enhancing the experiences of Meta's 3 billion users and supporting Meta's business and development ecosystem. According to a recent report released by Bloomberg industry research analysts, it is expected that the total revenue of the generative AI market will grow from approximately $40 billion in 2022 to $13 trillion by 2032. This market is expected to grow rapidly at a compound rate of 43% over the next 10 years. The Bloomberg industry research team stated that market expansion will first focus on the strong demand for infrastructure needed to train AI systems, followed by strong demand for subsequent terminal devices using AI models, as well as other services such as advertising and software applications. In the ecosystem of applications targeting B\C users, such as advertising and software applications, Meta is undoubtedly a highly proficient area. According to Wall Street analysts compiled by TIPRANKS, the most optimistic price target for Meta is $935, indicating a potential 30% increase in Meta's stock price over the next 12 months; while the average target price for Wall Street analysts is $764. On Tuesday, after rising for 17 consecutive days, Meta's stock closed at $719.80.