If we rewind back to December last year, US tech stocks were taking a beating. News about headcount reductions, higher interest rates and concerns about the health of the US economy all spooked investors. Yet this year we’ve seen a strong bounceback in the stock performance. One of the most impressive has been Meta Platforms (NASDAQ:META). So if I’d bought Meta shares at the beginning of the year, how would things look now?
Considering the numbers
Simply put, things would be looking very rosy. From trading at $120 at the start of 2023, Meta shares are now at $281. So my £1,000 would have more than doubled in value. In fact, I’d be up 134.1%, with my pot swelling to a value of £2,341.
Given that we’re talking about just under six months, it’s a very strong performance from the rebranded Facebook. How does it compare to the broader Nasdaq 100 index? Over this same time period, the index is up 38.8%. So even with a lofty benchmark, Meta has well outstripped the average here.
As a disclaimer, a wise investor should always analyse different time periods. Sometimes, using a short period can provide an incomplete picture. For reference, over the past year Meta shares are up 71%. Over five years, the stock is up a smaller 39%.
Why the gains don’t surprise me
The soaring share price so far this year doesn’t come as a big shock. In the Q1 results announcement, Mark Zuckerberg said that “our AI work is driving good results across our apps and business.”
Artificial intelligence (AI) has really blown up in popularity in recent months. It’s seen by many to be the future of technology, with such a broad range of uses. Meta is already claiming to be ahead in this game, something that’s attracting a lot of investors.
With a price-to-earnings ratio of just under 35, the rally also doesn’t look stretched to me. Granted, the P/E ratio is above average. Yet for a major tech stock that has seen such a large short-term rally, it’s not crazy high. From that perspective, I don’t see why the move higher can’t continue from here.
Protecting the profits
Despite my optimism around the stock, if I had invested at the beginning of the year I’d be very inclined to book some profit. For example, I could sell some Meta shares worth £500-£750 and put this amount into a new stock that I feel is undervalued.
That way, I reduce my risk of any downbeat scenario going forward via diversification. After all, Meta is still exposed to the US economy that’s 50:50 on whether it’ll head into a recession this year. High interest rates are putting the squeeze on consumers, which could reduce their spending on the company’s related products and services.
Ultimately, my investment would have performed very well, with potential gains still upcoming in 2023.
