Artificial intelligence (AI) has become a central focus in today’s tech landscape. Almost weekly, news headlines tout advancements and implications of AI, making it a crucial area for investors to understand. With leading companies like Meta Platforms pouring billions into this technology, exploring AI stocks can be a profitable strategy.
The key takeaway is that AI is here to stay, and corporate giants back it. Executives recognize the potential, continuing to invest heavily in AI development, including Meta Platforms. Given this trend, it’s wise to consider how to capitalize on it.
Finding top AI stocks is straightforward. One standout is Meta Platforms (META 0.35%), which has seen a remarkable 675% increase since early November 2022. This performance points to significant growth potential.
Fundamental Strength
Not too long ago, Meta Platforms faced challenges. In 2022, macroeconomic issues led to slower revenue growth, and profitability took a hit due to higher costs.
However, the company roared back with strong financial results over the past two years. A resilient economy and a sharp focus on financial discipline contributed to this turnaround.
Revenue climbed 15.7% in 2023 and 21.9% in 2024. In Q4, Meta Platforms reported an impressive 48% operating margin, up from 20% just two years ago. This robust performance underpins the rise in its stock price.
AI Ambitions
Like many tech giants, Meta Platforms is making substantial investments in AI, allocating $39 billion in capital expenditures (capex) for 2024.
During Q4 earnings calls, CFO Susan Li announced plans for capex to grow to $60 billion to $65 billion in 2025. This funding will underpin Meta’s efforts in generative AI and its core business.
Meta Platforms has already introduced AI features that aid social media users in finding information, editing photos, and writing creatively. Additionally, it launched smart glasses, selling 1 million pairs in a single year.
The company also offers tools for advertisers to enhance their marketing campaigns. Over 4 million advertisers now use generative AI features. For them, the goal is to increase ROI by directing more ad spending toward Meta Platforms.
Position of Power
Meta Platforms’ financial health positions it uniquely for AI investments. At the end of 2023, the company had $77.8 billion in cash, cash equivalents, and marketable securities on its balance sheet. This sum significantly exceeds its total long-term debt of $28.8 billion.
Meta also generates strong cash flows; it reported $52.6 billion in annualized free cash flow in Q4. Such financial standing provides minimal risk for the company.
The company’s massive user base, at 3.35 billion daily active users as of Q4, contributes to strong network effects. This user base supports Meta Platforms’ incredibly strong competitive position.
Is Meta Worth the Price?
As of this writing, Meta Platforms trades at a price-to-earnings (P/E) ratio of 29.8, a premium compared to its trailing-five-year average. However, given the stock’s stellar rise since 2022, this valuation is not surprising.
While the stock is not a bargain, it still presents a reasonable entry point for new investors. Over the past three years, diluted earnings per share have increased at an annual rate of 20.1%. This growth supports the current price, making it worthwhile to own one of the best businesses globally.
Meta Platforms’ CEO, Mark Zuckerberg’s sister, Randi Zuckerberg, serves on The Motley Fool’s board of directors. Neil Patel and his clients have no stake in Meta. The Motley Fool owns shares of Meta Platforms and recommends it. Please refer to our disclosure policy for more information.
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