Alphabet vs. Meta Platforms: Which Stock Should You Buy Now?
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META) have become titans of digital innovation, significantly boosting shareholder value in the last decade. This year, advancements in artificial intelligence (AI) have sparked renewed growth, leading both companies’ stocks to new heights.
This article evaluates whether Alphabet or Meta Platforms represents the better investment opportunity today.
Image source: Getty Images.
Why Consider Alphabet?
Alphabet, with its well-known Google brand, has built a diverse range of products and services. This includes internet search and browser operations, a significant cloud computing segment, and the popular YouTube platform. Alphabet also ventures into emerging technologies, owning Waymo, an autonomous driving start-up, showcasing its commitment to innovation.
This extensive reach gives Alphabet a competitive edge, allowing it to create product synergies across a massive advertising network. A substantial investment in AI has further strengthened its operational and financial performance. Enhanced search algorithms are improving ad conversion rates, translating to tangible benefits on the balance sheet.
In the third quarter, Alphabet’s revenue rose by 15% compared to the previous year. Earnings per share (EPS) surged by 37%. Management reports a strong interest from advertising partners and consumers in their AI tools, projecting continued growth. This optimism has contributed to a 22% increase in Alphabet’s stock this year.
Meanwhile, Meta Platforms also shows compelling performance, but Alphabet offers a critical advantage: its valuation. Analysts estimate Alphabet’s shares are trading at 22 times the full-year consensus EPS, while Meta stands at a forward price-to-earnings (P/E) ratio of 25. For those seeking value within the tech sector, Alphabet emerges as the more attractive option.
GOOGL PE Ratio (Forward) data by YCharts
Why Meta Platforms Could Be the Stronger Choice
Meta Platforms has made significant gains this year, with its stock rising by 60% in 2024 so far. While it may not have the same diversification as Alphabet, Meta excels in social media, effectively monetizing its platforms.
With a combined 3.3 billion daily active users across Facebook, Instagram, Threads, and WhatsApp, Meta enjoys a considerable advantage in data collection and user engagement. This deep engagement allows for attractive advertising opportunities, which are now enhanced by AI-driven optimizations.
Meta is currently experiencing stronger growth. In its most recent third-quarter report, revenue increased by 19% year-over-year, driven by AI-enhanced ad performance amid a steady macroeconomic climate.
Analysts forecast a 52% growth in Meta’s full-year EPS, compared to a 38% increase expected for Alphabet. This difference supports Meta’s higher valuation, as it appears to be more profitable at this stage.
The potential for Meta to unlock new revenue streams or realize its vision for the metaverse might dramatically impact its long-term prospects, adding to its appeal for investors confident in the company’s leadership in digital advertising and AI.
Choosing between Alphabet and Meta poses a challenge, as both companies demonstrate strong fundamentals. Should a decision be necessary, Meta Platforms may have the advantage, especially given the lingering regulatory challenges and antitrust scrutiny facing Alphabet. Recent reports suggest the U.S. Department of Justice may push for divestiture of Alphabet’s Chrome browser due to its dominant market position, introducing additional risk for investors.
While these developments remain unconfirmed, they have the potential to create volatility in Alphabet’s stock. Consequently, Meta Platforms may provide a clearer path for rewarding long-term shareholders.
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*Stock Advisor returns as of November 18, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is also on The Motley Fool’s board. Dan Victor does not have a position in any of the stocks mentioned. The Motley Fool owns shares of, and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
