Why Meta Platforms (NASDAQ: META) Remains a Smart Investment Choice
Despite mixed reactions, Meta Platforms continues to excel in its core business as it invests in artificial intelligence.
AI Innovations Drive Meta’s Growth
Meta Platforms, known for its social media platforms like Facebook and Instagram, often faces scrutiny for its AI ventures, which represent only a small fraction of its operations. Recent Q3 earnings revealed a strong performance: the company reported a 19% increase in advertising revenue year-over-year, contributing to a staggering $40.6 billion in total revenue. Notably, $39.9 billion of this came directly from ads on its social media sites.
Many investors tend to overlook this major revenue source, focusing instead on Meta’s experimental projects. While past investments in the metaverse have not yet shown results, the development of its generative AI model, Llama, has achieved remarkable success.
Llama has gained traction as a foundation for AI models at major companies such as AT&T, Goldman Sachs, and Shopify. Between January and July 2024, Llama’s usage skyrocketed tenfold, showcasing its rapid acceptance in the market.
To leverage this growth, Meta is planning an enhanced version called Llama 4, which will require ten times the computational power compared to its predecessor, Llama 3.
As Meta aims to create a leading AI model, it has indicated to investors to anticipate significant increases in capital expenditures by 2025. This news raised concerns among investors, who prefer the company to prioritize stable cash flow and dividends. However, this short-sighted view ignores the potential game-changing impact of a successful AI model, which could far exceed the benefits of immediate shareholder returns. Meta’s AI venture holds the promise of being the next big innovation, much like Facebook once was.
Meta’s Stock Remains Reasonably Priced
Although Meta’s stock price experienced a decline, it is not overpriced. Currently, it trades at 25 times forward earnings, a slight premium over the S&P 500, which stands at 23.8 times forward earnings. Investors face uncertainty regarding future earnings projections due to ongoing AI investments.
However, once this investment phase concludes, Meta is likely to maintain its dominance in social media while benefiting from a strong customer base utilizing its AI model. Though the exact financial future is uncertain, it is expected to present a more compelling version of the company.
Consequently, I believe Meta is an excellent stock to consider now, although patience may be required to fully realize its potential.
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*Stock Advisor returns as of November 4, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Keithen Drury holds positions in Meta Platforms and Shopify. The Motley Fool has positions in and recommends Meta Platforms and Shopify. The Motley Fool adheres to a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
