Zinger Key Points
- Just ahead of social media giant Meta Platforms’ Q4 earnings, overall sentiment appears bullish.
- However, excess valuation concerns bring a hearty debate for Direxion’s META-focused bull and bear ETFs.
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Mere days away from social media giant Meta Platforms Inc. META releasing its earnings results for the fourth quarter, the overall ambiance appears optimistic. Currently, Wall Street analysts rate META stock as a Buy with a consensus price target of just over $666. However, the most optimistic target calls for $811 per share, an assessment backed by certain fundamental factors.
First, geopolitical drama in the social media landscape could cynically benefit META stock. Previously, the U.S. Supreme Court upheld a ruling that video-sharing platform TikTok would be banned in the nation unless parent company ByteDance sold off the American portion of the business. Subsequently, President Donald Trump issued an executive order suspending the ban for 75 days, thus providing time for an equitable solution to be found.
It’s quite possible that cooler heads may prevail. Nevertheless, should hiccups occur, the fallout could easily boost META stock. According to an eMarketer report, TikTok generated $12.34 billion in U.S. advertising revenue last year. Therefore, analysts at Morgan Stanley predicted that Meta would emerge as the "largest fundamental winner of any TikTok ban."
Second, the company has made significant investments in artificial intelligence. Per Deepwater Asset Management's Gene Munster, the social media and tech juggernaut plans to invest up to $65 billion this year to expand its AI infrastructure. While such a directive would help hardware providers like Nvidia Corp. NVDA, Meta would establish a massive footprint in the broader AI flywheel.
Still, not every element shines favorably on META stock. On the political front, Vice President J.D. Vance has voiced concerns about the influence of big tech companies. One of the talking points centers on censorship, which has been a conservative rallying cry throughout the campaign trail despite conflicting evidence. More problematic, Vance has previously vocalized his desire to break up large tech companies.
Another headwind against META stock is the underlying fading stakes now that the 2024 election is in the rearview mirror. Elon Musk of social media platform X decried stagnant user growth and unimpressive revenue. Similar obstacles could impact Meta's social network business, thus highlighting META's valuation risk.
The Direxion ETFs: With the underlying narrative capable of moving in either direction, traders may gravitate toward Direxion's META-centric exchange-traded funds. For optimistic investors, the Direxion Daily META Bull 2X Shares METU offers 200% of the daily investment results of the namesake security. On the other end, pessimists may consider the Direxion Daily META Bear 1X Shares METD, which represents 100% of the inverse performance of META.
For either the METU or METD ETF, one of the key characteristics is convenience. Ordinarily, those traders seeking leveraged or bearish wagers on major securities like META stock will deploy options. However, such strategies can be complicated. With Direxion ETFs, these units can be purchased in a similar manner to any publicly traded security.
That said, investors must be aware of the risks associated with leveraged or inverse ETFs. In particular, Direxion states that exposure should last no longer than a single day. Going beyond this recommended exposure could lead to value decay due to the daily compounding of volatility.
The METU ETF: Although it's prone to cycles of extreme choppiness, Direxion's META Bull fund has benefited from overall tech enthusiasm, gaining over 49% since its early June debut.
- Currently, METU is benefiting from a "step-up" formation, steadily marching higher following temporary bouts of consolidation.
- Although there's some pessimism ahead of the Q4 disclosure, META could continue rising so long as the price action doesn't break below the 50-day moving average of $35.17.
The METD ETF: In sharp contrast, Direxion's META bear fund has struggled since its June debut, losing almost 26% of its market value.
- Unfortunately for META bears, the METD ETF appears to be mired in a clearly defined negative channel, with the 50 DMA imposing upside resistance.
- METD falling below the $18 level wasn't helpful. However, the bears could get something going if the price breaks above resistance at $18.50.
Featured photo by Thomas Ulrich on Pixabay.
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