Meta Platforms (NASDAQ:META) received an upgrade from Underperform to Hold by Needham & Company on Thursday, citing strong second-quarter performance and impressive labor productivity. However, the firm remains cautious, pointing to long-term strategic and structural concerns.
“We upgrade META to Hold (from Underperform) based on: a) channel checks driving upside to our estimates; and b) META’s strong labor productivity metrics,” Needham analysts wrote, emphasizing Meta’s globally scaled, software-only model that benefits from “closed loop attribution for advertisers” and operates without content licensing costs.
Despite the improved rating, Needham declined to move to a Buy, issuing a warning that “META’s strategy diffusion wastes capital and adds risks.”
The firm highlighted persistent challenges around profitability, noting that Meta’s stock-based compensation per full-time employee (SBC/FTE) is the highest among its peers, which could weigh on margins and free cash flow.
“Consensus estimates understate total labor costs and dilution,” analysts cautioned.
Needham also flagged over-ownership and market saturation, noting that “about 90% of the 50 analysts that cover META have a Buy or Strong Buy rating, which implies (to us) that META shares are over-owned.”
Despite those concerns, Needham lifted its 2025 full-year estimates, now projecting 14% revenue growth and 6% EPS growth, up from previous forecasts. “META will over-deliver on our prior rev and margin estimates for 2Q25 and FY25,” the note stated.
Still, analysts cautioned that gains in productivity may be peaking. “Labor productivity improvement is slowing,” they wrote, with rising headcount and increasing employee costs likely to limit further stock upside.
Meta is also facing intensifying competition in AI. Sources told Reuters that Daniel Gross has joined Meta Platforms to lead its AI products division, following his departure from Safe Superintelligence (SSI), the AI startup he co-founded with Ilya Sutskever.
Sutskever has now resumed leadership of SSI, which recently raised $1 billion and is developing AI designed to safely surpass human intelligence. “You might have heard rumors of companies looking to acquire us. We are flattered by their attention but are focused on seeing our work through,” Sutskever said in a post on X.
Meta had attempted to recruit Sutskever and even made a bid to acquire SSI, which was last valued at $32 billion, according to sources.
In response to mounting pressure in the AI space, CEO Mark Zuckerberg has formed a new unit—Meta Superintelligence Labs—to consolidate the company’s AI efforts. The division will be led by Alexandr Wang, former CEO of Scale AI, and Nat Friedman, former GitHub chief.
The move follows Meta’s $14.3 billion investment in Scale AI and aggressive hiring spree for top AI talent. Wang and Friedman’s ties to Daniel Gross are also notable—they co-founded venture firm NFDG, which has backed high-profile startups including SSI, Figma, and Perplexity.
Gross, who previously sold his AI startup Cue to Apple in 2013, later led machine learning initiatives at Apple before co-founding SSI. His hiring signals Meta’s continued commitment to shaping the future of artificial intelligence—despite the capital pressures and risks Needham continues to highlight.
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