Meta is facing new pressure from OpenAI, the giant company behind ChatGPT. OpenAI is currently making waves in short-form videos with its viral hit “Sora 2.” The new app combines AI-powered video generation with a social feed that mimics TikTok and Instagram Reels. Less than five days after its September 30 launch, Sora 2 has racked up more than 1 million iOS downloads for Apple devices, despite being invite-only. This pace surpassed downloads for the ChatGPT app, which launched in May 2023, six months after the AI chatbot debuted on web browsers, marking the beginning of a historic rise in popularity. Sora 2 spent three weeks at No. 1 on Apple’s App Store, but was replaced this week by Dave’s Hot Chicken China thanks to a promotional boost from rapper Drake. Still, it was in second place as of Friday morning. Threat to Meta: If Sora 2 proves to have staying power, it could chip away at Meta’s most valuable asset: the time people spend scrolling and posting on Facebook and Instagram, the time that makes those apps essential destinations for advertisers. Meta is expected to generate $192 billion in advertising revenue in 2025 alone. For Meta, nearly all of its revenue comes from advertising, so eyeballs equal dollars. “This is not the end of the momentum for Instagram and Facebook,” MoffettNathanson analyst Michael Nathanson said in an interview with CNBC. “However, if investors view this as a threat, it could limit the amount they are willing to pay for the premium for Meta stock,” added Nathanson, who maintains a Buy rating and $890 price target on Meta stock. This represents an increase of about 21% from Thursday’s closing price. Meta stock is down nearly 1% since the day before Sora 2’s debut, part of a months-long stock market slump. Meanwhile, the tech-heavy Nasdaq has risen more than 2% in the more than three weeks since Sora 2’s debut, and is up about 10% over the past three months. Nathanson believes investor anxiety is growing and any disruption to Meta’s “engagement flywheel” and its ad spend could cause investor sentiment to deteriorate quickly. Nathanson remains bullish on Meta stocks, but says his decades as an analyst have taught him to remain open-minded to changes in consumer behavior. Generally, “investors start to worry about the long-term sustainability of the business model,” Nathanson added. “And as potential new competitors emerge, people will pay lower multiples for future returns.” META YTD Mountain Meta Platform YTD This is a familiar storyline for technology investors. ChatGPT’s explosive growth following its debut in late 2022 has given Google’s parent company Alphabet a big boost as investors question the durability of Google’s search empire in the face of conversational competitors. “People were really concerned about Alphabet’s future profitability,” Nathanson said. Almost three years later, is Meta facing a ChatGPT moment? Or is Sora 2 just another flash that can’t diminish Meta’s social media dominance? Sora 2 allows users to generate, remix, and include their own AI videos using text and images. In addition to being a video generator, it also has built-in social apps. The app allows users to discover new videos in a customizable Sora feed and share them on other social networks. Sora 2 builds on the original Sora model released in February 2024 with advanced features that produce more physically accurate and realistic video. To be sure, OpenAI’s rapid growth has not been without friction. Last week, the company suspended an AI-generated video of Martin Luther King Jr. after a user created a “disrespectful depiction” of civil rights leader Martin Luther King Jr. OpenAI said it will strengthen guardrails for public figures, allowing individuals and their families to opt out of being included in Sora-generated content. OpenAI doesn’t have the entire AI video space to itself. Google has a Veo model, an updated version of which was released last week. Days before the release of Sora 2, Meta debuted Vibes, a new feed in the Meta AI app that allows users to create and share short-form, AI-generated videos. While browsing, users see a variety of AI-generated videos that become more personalized over time. Vibes allows users to create their own videos from scratch, work with existing content, and remix videos from feeds to create their own videos. When you’re ready to share, you can post directly to your Vibes feed, message your friends directly, or cross-post to Stories and Reels on Instagram or Facebook. When potential new competitors emerge, people will pay a lower multiple for future earnings. Moffett Nathanson analyst Michael Nathanson Vives is also paying attention. As of Oct. 17, Meta AI had a combined daily active user count of 2.7 million on iOS and Android, up from about 775,000 four weeks earlier, according to market intelligence provider Similarweb. Based on when Vibes was incorporated into the Meta AI app, the company believes it was a catalyst for the app’s recent growth. Meta’s Vibes could be the answer to Sora 2, but Vibes is “technically still inferior to Sora,” Nathanson wrote in an Oct. 13 note to customers. Unlike Sora, which blends real-world footage with AI-generated footage and operates on OpenAI’s proprietary model, Vibes still relies on third-party tools to generate fully synthetic content. With CEO Mark Zuckerberg reportedly growing dissatisfied with the company’s AI status, Meta has embarked on an aggressive recruitment drive this summer to hire top AI talent in an effort to close the gap with OpenAI and other AI startups. Meta is currently laying off 600 people in its AI division, but CNBC reported this week that none of the big hires it made this year were affected by the layoffs. In addition to heavily funding talent, Meta is pouring tens of billions of dollars into data center projects to expand its AI computing footprint. So far, investors have largely backed Meta’s big AI investment, believing it has already improved its ad-targeting capabilities, giving Zuckerberg space to pursue other long-term AI pursuits, such as his vision of a “personal superintelligence.” BMO Capital Markets analyst Brian Pitts argued that Meta’s scale and adaptability provide a strong buffer against potential disruption from Sora 2. “If growth starts to slow in one area, you can step up the gas in another,” he said, citing apps like WhatsApp and Threads, which are not yet big revenue sources, although Meta introduced advertising on both platforms this year. Additionally, Meta’s history of “rapidly growing” innovations, such as developing Stories to compete with TikTok and Snapchat and Reels, demonstrates the company’s ability to keep up with competitors and ultimately win on engagement, Pitts said. Most importantly, Meta’s “competitive moat” remains over 3 billion daily active users, Pitts said. OpenAI’s audience is still far from matching both Sora 2 and its flagship ChatGPT (which has 800 million weekly active users). “A little bit of new monetization goes a long way for such a large user base,” said Pitts, who rates Meta stock equivalent to Hold and has a price target of $710. A more fundamental question looms over the rise of Sora 2 and Meta’s own Vibes. Do people really want fully AI-generated content on social media? Sola’s growth has been impressive, but Pitts thinks the hype could fade. “It’s hard to call him a winner here,” he said of Sola, warning that users could grow tired of synthetic feeds or abandon the platform over copyright disputes or AI’s “vile” content. “There’s a danger that it will become a cesspool of madness,” Pitts said. According to some data, the buzz around Sora 2 already seems to be building among the millions of people who have been invited to download it. It’s hard to call a winner here. “While a plausible (competitive) concern, our data check indicates softness in Sola’s retention,” Deutsche Bank analysts wrote in a note Tuesday. “In fact, by day 7, we found that approximately 98% of initial users no longer open the app, so in our view, the app still lacks the scale and retention level to be a meaningful new competitor to Instagram/Facebook engagement.” For now, that’s music to meta investors’ ears. And soon, you’ll be able to hear directly from Mr. Zuckerberg on this and many more questions, including whether there are further signs that the company’s investments in AI are paying off across the company, when the company reports its third-quarter results on October 29th and holds a post-earnings conference call with analysts. (Jim Cramer’s Charitable Trust is long META, AAPL. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. 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