I believe that Meta (NASDAQ:META) is benefitting from improving U.S. advertising trends, and the company appears to have greatly dialed back its ill-fated, expensive forays into the metaverse, pleasing many large investors. Moreover, Mark Zuckerberg’s company has launched a number of much more promising initiatives. Still, Meta continues to face tough competition and, after climbing a great deal in recent months, META stock is definitely no longer cheap.

Given these points, I don’t anticipate that the shares will outperform the market in the medium term. But on the other hand, I do not expect the stock to sink a great deal anytime soon, and I believe that Meta can advance significantly over the longer term if one or more of its promising initiatives bear fruit.

Therefore, investors who are upbeat on the company’s outlook and already own Meta’s shares can hold them. But I would not recommend that anyone buy the stock at this point.

Improving Ad Trends and Cutting Back on the Metaverse Dream

In recent weeks, multiple sources have reported that U.S. ad markets are improving. I believe that many American advertisers have realized that a recession is not on the horizon and have consequently greatly stepped up their spending on ads. With the job market and consumer spending continuing to rise significantly, I expect this trend to continue for a long period of time.

Meta clearly benefited from this phenomenon, as its revenue climbed 6% year-over-year in in the first quarter, excluding currency fluctuations.

And in another positive development, Meta has decided to greatly reduce the amount of money that it will spend on Zuckerberg’s metaverse aspirations. Since I’ve always thought that Meta’s metaverse efforts were doomed to fail to positively move the needle for META stock, I definitely view this news quite favorably.

More Promising Initiatives

Meta’s open-source AI strategy appears to have been a good call, as the company’s AI system is now reportedly as effective as ChatGPT at a relatively minimal cost to Meta. And Meta is using AI to better optimize its ads and plans to use it down the road to more efficiently develop creative ads for its customers.

What’s more, the company is looking to expand advertising on Reels, its short videos. Given the very high popularity of TikTok, which features short videos, I believe that Meta can generate a great deal of revenue by monetizing Reels.

Tough Competition

Of course, marketers can place their ads in many venues other than Meta. Just in the social media sector, TikTok, Snap (NYSE:SNAP), and Twitter are all significant competitors for Meta. In terms of other websites, Alphabet’s (NASDAQ:GOOG, GOOGL) Google attracts a huge amount of ad dollars. while Amazon’s (NASDAQ:AMZN) ad business is rapidly growing.

Valuation and the Bottom Line on META Stock

Meta now has a forward price-earnings ratio of 20.6x. While that’s certainly not an especially high valuation, it seems appropriate for Meta for a couple of reasons. First, there’s the difficult competition that I discussed in the last paragraph.

Secondly, analysts, on average, expect the company’s earnings per share to climb 20% next year, which would be a good, but not a great, increase. And finally, Zuckerberg could very well decide to greatly boost spending on the metaverse again in the future if he becomes more optimistic about the economy, causing Meta’s bottom line to come in below the current average estimates.

Meta’s AI and Reels initiatives could greatly boost the company’s financial results in the long term, but I think it’s too early to determine whether that will be the case. Given the company’s tough competition, fair valuation and its possible future spending increases, I would not advise buying META stock at this point.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.