Evaluating AI Investments: Meta Platforms vs. Alphabet

Technology stocks have had a remarkable year, propelling the S&P 500 to a 27% gain. Behind this success are the “Magnificent Seven” stocks, a term inspired by the classic Western film. These major companies boast a strong history of earnings growth and continuous innovation, which positions them for future revenue increases.

Recognizable names from this group include:

• Meta Platforms (NASDAQ: META) – owner of popular social media platforms like Facebook.
• Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) – parent company of Google and YouTube.
• Amazon – the leading e-commerce and cloud computing company.
• Apple – known for the iPhone and other tech products.
• Microsoft – a key player in software and cloud services.
• Nvidia – a top company in the artificial intelligence (AI) chip sector.
• Tesla – the leader in electric vehicle production.

The annual gains for these stocks vary widely, from Microsoft’s 19% increase to Nvidia’s impressive 171%. While shareholders have benefitted, these gains have also inflated company valuations.

However, two companies from the Magnificent Seven still present affordable options: Meta Platforms and Alphabet. Both firms are investing heavily in the burgeoning field of AI, with forward price-to-earnings ratios standing at 27 for Meta and 24 for Alphabet. So, which one is the better investment for AI enthusiasts by 2025?

Image source: Getty Images.

Why Meta Could Be a Solid Choice

Meta runs several of the most popular social media applications, including Facebook, Messenger, WhatsApp, and Instagram. Each day, over 3.2 billion users engage with at least one of Meta’s platforms, generating significant revenue from digital advertising. Advertisers recognize the unique opportunity to reach audiences effectively while users are active on Meta’s apps. The latest figures show a 19% year-over-year increase in Meta’s advertising revenue, surpassing $39 billion.

In addition to its strong advertising capabilities, Meta is heavily investing in AI, notably through its open-source large language model (LLM) called Llama. This approach fosters collaboration among developers and may position Meta as a future leader in AI technology.

Management emphasizes that while Meta is committed to developing AI tools to enhance user experiences, immediate returns should not be expected. Patience will be key for investors.

Alphabet’s AI Strategy

Alphabet stands out as both a user and a developer of AI technology. The company’s Gemini LLM works to enhance Google Search, which already commands a 90% market share as the most widely used search engine globally. Recent enhancements have increased user engagement on Google Search, including a feature that summarizes relevant information on queried topics.

Similar to Meta, Alphabet generates most of its income from digital advertising. In the third quarter, advertising revenue rose 10%, reaching over $65 billion.

Moreover, Alphabet is expanding its AI capabilities through its Google Cloud division. In the second quarter, Google Cloud reported more than $10 billion in revenue and over $1 billion in operating income, with both metrics continuing to grow. Clients can access various AI resources, including a comprehensive AI development platform called Vertex AI. This growth indicates Alphabet is reaping the benefits of its AI investments.

Determining the Best AI Investment

Before making a call, it’s important to consider Alphabet’s current legal challenges, including antitrust allegations that could potentially result in a break-up of the company. While this poses a risk, Alphabet remains resolute in its stance against any unfavorable outcomes in court, and these antitrust issues would not deter my investment interest.

So, which company stands as the better AI investment? While both are strong candidates, I lean towards Alphabet. The momentum in its Google Cloud sector indicates a promising future for its stock, particularly as the AI landscape continues to evolve.

Should You Invest $1,000 in Meta Platforms Right Now?

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John Mackey, former CEO of Whole Foods Market (an Amazon subsidiary), and Suzanne Frey (an executive at Alphabet) are both members of The Motley Fool’s board of directors. Randi Zuckerberg, former market development director at Facebook (and sister to Meta’s CEO), is also on the board. Adria Cimino holds shares in Amazon and Tesla. The Motley Fool endorses and owns shares in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Additionally, The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc.