Meta Platforms (META 0.36%) is best known for its social media dominance, and for good reason. More than 3.1 billion people use one of the company’s apps every day. From Facebook to Instagram, Whatsapp, and Threads, the company has become an expert when it comes to connecting people.
And this expertise along with recent cost cuts and a focus on efficiency has driven earnings gains. Last year, revenue climbed in the double digits to $134 billion, and net income soared 69% to $39 billion. This is mainly thanks to advertising revenue across the company’s social media platforms.
But Meta’s focus doesn’t stop at social media as we know it today. The company over time has shifted gears to invest in something that could reinforce its social media dominance, ensure advertising revenue growth, and even offer potential for new sources of revenue. I’m talking about artificial intelligence (AI). “AI will be our biggest investment area in 2024,” Meta chief executive officer Mark Zuckerberg said last year. Does this make the stock a buy? Let’s find out.
Image source: Getty Images.
From Llama to Meta AI
Meta isn’t new to the field of AI and has progressively increased its presence in this hot technology. The company has developed the Llama family of large language models (LLMs), conversational assistant Meta AI to be used across apps, and even AI-powered smart glasses.
The company’s goal is to make these and other products an integral part of Meta products and services. For example, one day, all Meta app users will rely on an AI assistant to help them with everything from daily tasks to addressing bigger questions. And every developer possibly could come to Meta for access to a top quality open-source model for building.
Importantly, AI also can help Meta increase the profitability of its family of apps moving forward. Reels — those short videos featuring a cat, a new dance move, or just about anything — use AI to serve them to the right audience. Reels have taken off, with people sharing them 3.5 billion times every day. The more time people spend on platforms like Instagram or Meta’s other apps, the more advertisers will want to catch them there — and that equals growing revenue for Meta.
And speaking of advertisers, Meta also continues to develop and improve tools to help them use AI to gain efficiency and better target their ads. These efforts, too, should keep Meta’s biggest source of revenue coming back and eventually even spending more.
How will Meta stay ahead in AI?
So, how does Meta plan on staying ahead in this competitive field of AI? The company aims to boost its work in AI across many levels, starting with computing power. By the end of the year, Meta aims to have 600,000 graphics processing units (GPUs) of compute, and more than half will be from top GPU maker, Nvidia. These chips, with their ability to conduct multiple tasks simultaneously, power the “deep learning” of AI models, making them critical to AI development.
Meta also continues to champion open-source software infrastructure development, meaning that these platforms, such as LLM Llama, are openly available for use. This doesn’t stop Meta from keeping certain product specificities proprietary — and at the same time, the company can benefit from the input of other experts in the field to help advance the development of AI projects. As Meta notes, open-source software typically offers more security and efficiency — and often becomes the industry standard. So, Meta has a lot to gain over the long run by fostering collaboration instead of operating behind closed doors.
To support general growth as well as AI expansion, Meta has increased the high end of its capital spending forecast for this year by $2 billion — the company now expects to invest $30 billion to $37 billion, primarily in servers and data centers. Meta also plans on hiring in key areas this year to favor AI development now and over the long term.
Is Meta an AI Buy?
Now, let’s get back to our question: Does all of this make Meta a buy? Meta is a social media leader, and that leadership has helped it generate billions of dollars in earnings. An investment in AI is expensive, but Meta has cut costs where needed and boosted efficiency in recent times — so the company has what it takes financially to make this investment. And AI should drive gains in advertising revenue and could lead to other revenue sources down the road.
Even after the stock soared more than 150% over the past year, the shares trade for only 24x forward earnings estimates — dirt cheap for a growth stock.
All of these elements, together, make Meta a top stock to buy today and to hold onto for the long term.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
