Investing in AI: A Look at Alphabet and Meta Platforms
Current discussions on tariffs often overshadow the significant impact of artificial intelligence (AI) in business. Experts anticipate that AI could enhance productivity, disrupt existing industries, and contribute positively to economic growth.
Investors should focus on AI developments and assess how to incorporate opportunities into their portfolios. A solid starting point is evaluating two leading internet giants: Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Meta Platforms (NASDAQ: META). Both companies have demonstrated strong performance for shareholders over the past decade and are strategically positioned in the AI sector.
AI Powerhouses: Alphabet and Meta
Alphabet has invested significantly in machine learning and AI across its product lines. Today, AI enhances search capabilities, YouTube content recommendations, and Google Maps traffic insights.
The company’s Gemini AI models are already integrated into various products, improving user experience. Additionally, with Google DeepMind, Alphabet leads in AI research. The Google Cloud segment offers AI-driven tools, empowering customers to build their own applications.
Meta boasts popular social platforms with over 3.3 billion daily active users. To enhance user experience, the company has introduced Meta AI, which streamlines information searches and generates images. Furthermore, AI technology integrated into Ray-Ban smart glasses aids in content recommendations.
Both Alphabet and Meta emphasize enhancing services for their main sources of revenue: advertisers. They aim to improve targeting precision and maximize return on advertising spend while prioritizing efficiency. Their successes are evident.
During Alphabet’s fourth-quarter 2024 earnings call, Chief Business Officer Philipp Schindler noted, “Google AI-powered video campaigns on YouTube deliver 17% higher return on advertising spend than manual campaigns.” In January, Meta’s CFO Susan Li mentioned, “More than four million advertisers are using at least one of our generative AI ad creative tools, up from one million six months ago.”
Investing Big in AI: Future Prospects
Alphabet and Meta are making substantial investments forecasted at $75 billion and $60 to $65 billion respectively in capital expenditures for 2025. These funds will be directed toward technical infrastructure improvements.
Critics raise concerns regarding the potential for overinvestment and unclear returns. However, these technology leaders possess ample financial resources, with combined net income reaching $162 billion in 2024 and a balance sheet boasting $173 billion in cash, cash equivalents, and marketable securities.
Investors might prefer Alphabet and Meta to pursue AI investments rather than abstaining, as not engaging may risk their competitive edge in a rapidly evolving technological landscape. Recognizing that employment in AI carries risk is essential.
Currently, Alphabet’s shares have a forward price-to-earnings ratio of 16.9, while Meta’s ratio is 20.1. Given their stronghold in the tech industry, expansive user bases, and robust financial health, both stocks merit consideration for investor portfolios.
Is Alphabet a Good Investment Right Now?
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Suzanne Frey, an executive at Alphabet, and Randi Zuckerberg, former director of market development at Facebook, are members of The Motley Fool’s board of directors. Neil Patel and his clients do not hold positions in any of the mentioned stocks. Both Alphabet and Meta Platforms are recommended by The Motley Fool.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
