Facebook Stock Forecast: Two New Reasons To Buy More Facebook

Facebook Stock Forecast

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • I will keep raising my bet on Facebook. This company is maturing beyond its core advertising/social network business.
  • Facebook’s recent revelation that it is building Artificial Intelligence chips with common sense is the Holy Grail.
  • Giving AI devices with the power of common sense is a godlike objective that will benefit humankind.
  • The other reason why I like FB is that Facebook is now a rising platform for e-commerce and gambling.

I previously wrote that Facebook (FB) is now more attractive than Apple (AAPL). It was because Facebook becoming a more aggressive personal data miner. I explained before that only an aggressive approach to accumulating intensive information (from people) will help Facebook close the gap against ad-leader Google (GOOGL) in digital advertising.

FB’s five-year return is better than AAPL’s, 136.03% versus 127.97%. I believe the next five years will repeat this Facebook’s outperformance of Apple’s stock. Unlike Apple, Facebook has no China headwinds.

(Source: Seeking Alpha)

Here’s another reason why we should keep on raising our bets on FB. Facebook’s chief Artificial [AI] Intelligence scientist Yann LeCun confirmed they want to develop AI chips with ‘common sense.’ Facebook therefore wants to own the Holy Grail of AI.

Giving AI devices and robots with common sense makes them more human-like. Going forward, Facebook wants to build a social network of practical thinking smart devices which can make quick intelligent decisions based on perceptions (not from deep learning-gathered data).  This the apex of artificial intelligence and Facebook is leading the way to it.

Facebook, no.2 digital advertising leader, is expanding its presence in the fast-growing global AI industry. This business has a market size of $21.46 billion last year. The AI industry is growing at 36.62% CAGR and it will be worth $190.61 billion by 2025. Facebook aiming for common sense-enabled AI machines differentiates it from the AI efforts of Microsoft (MSFT), Alphabet, and Apple (AAPL).

Building The AI Chips For Facebook’s Human-level Digital Home Assistant

It was reported last April that Facebook was building a custom chip for AI. Facebook also hired Google’s former lead chip designer last July. Facebook was also hiring engineers to build custom processors for Augmented Reality last September. This recent hiring spree says Facebook is very serious in building the best custom processors for its own future products and services.

Zuckerberg is clearly unsatisfied with the latest Nvidia (NVDA) and Intel’s (INTC) AI-centric processors and accelerators. Building its own custom ARM and FPGA AI chips gives Facebook 100% control. The downside of relying on other companies’ processors is that Facebook will always be limited to Intel or Nvidia’s patents-protected CPU architecture and technology.

Facebook has more than $41 billion in cash and short-term investments. Its quarterly free cash flow is $3 to $4 billion. Facebook can afford to quickly ramp up its custom chip design strategy. This is a priority venture because Facebook’s advertising business is decelerating. It needs the growing Augmented Reality and Artificial Intelligence industries as new sources of growth.

The chart below illustrates that Facebook’s advertising revenue growth is really slowing down.(Source: Statista)

Oculus Hardware and AI Personal Digital Assistants

Advertising will remain as Facebook’s biggest profit/revenue generator. However, Facebook has obvious expansion potential by selling Oculus headsets and smart speaker home assistants. Facebook’s custom chip efforts is obviously to improve its data center/server capacity to serve Augmented Reality products and AI devices.

Selling hardware devices helps Facebook find new non-advertising ways to monetize. My fearless forecast is that Facebook will eventually become a subscription-based AR-powered subscription cloud gaming service provider. This is akin to Google’s upcoming Netflix-style (NFLX) paid game streaming business.

Before it became an advertising juggernaut, Facebook’s early annual revenues came from video games hosted on its social platform. The Oculus AR platform is the next gaming hope of Facebook. The $138 billion/year video games industry will eventually feature AR games. These AR games can be experienced together by some of the 2.2 billion Facebook users.

The next future tailwind will be Facebook’s common sense-enabled AI smart speaker with touchscreen display and camera. The smart speaker hardware industry is estimated to be growing at CAGR of 31%. It will have a market size of $19 billion by 2023. This is small compared to advertising and video games. However, smart speakers with touchscreen displays are ideal vehicles for Facebook’s targeted and location-based advertisements.

The smart speaker is also a necessity for the connected home. By building its own common sense-capable AI home assistant, Facebook gets to penetrate more homes and offices.

Conclusion

FB is currently trading well below its 52-week high of $218.62. It has significant tailwinds that could help it bounce back to above $200 this year. Aside from AI, AR, and more aggressive people data gathering, the other tailwind for Facebook is that is now a growing venue for e-commerce and gambling.

If you are an active user of Facebook, you know that MarketPlace is now bigger than eBay (EBAY) in some towns/cities around the world. The other rising phenomenon is that Facebook Live is a favorite platform by online sellers who offer their products for sale in raffle-like manner.

For example, a Tupperware (TUP) business consultant can dispose her products by asking 100 of her friends on Facebook to buy $2 tickets. Five of those buyers will have the chance to win five pricey Tupperware products via a raffle draw done through Facebook Live. There are also Facebook Live events catering to Bingo, Poker, and horse racing gamblers.

Gambling is a global habit. Facebook’s number of active monthly users will keep on soaring because this social network is a great place to gamble with friends, town-mates, and relatives. The more active users there on Facebook’s web and mobile platforms, the more advertising eyeballs there are.

Let us therefore add more FB while it trades below $165. In spite of the privacy issues raised against Facebook, the predictive stock picking algorithm of I Know First still has a super bullish 12-month forecast for FB.

How to interpret this diagram

Past I Know First Success with Facebook Stock Forecast

I Know First has been bullish on FB shares in past forecasts. On January 29, 2019, the I Know First algorithm issued a bullish 1 year forecast for FB with a signal of 109.01 and a predictability of 0.27, the algorithm successfully forecasted the movement of the FB share. See chart below.

Current I Know First subscribers received this bullish FB forecast on January 29, 2019.

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Please note-for trading decisions use the most recent forecast