Investing in the Future: Meta Platforms and the Rise of AI

Artificial intelligence (AI) is capturing significant attention in today’s market. Major stories about AI breakthroughs seem to surface weekly, highlighting its potential impact.

For investors, it’s clear: this groundbreaking technology is not going anywhere. Corporate leaders are confident, funneling billions into AI. It may be wise to explore how to benefit from this trend.

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A standout opportunity in AI can be seen in a single stock: Meta Platforms, which has skyrocketed 675% since early November 2022.

Strength in Fundamentals

Not too long ago, Meta Platforms (NASDAQ: META) was struggling to maintain investor interest. In 2022, economic challenges slowed revenue growth and put profitability at risk due to rising expenses.

However, the company has rebounded exceptionally well over the past couple of years, with a resilient economy and a renewed focus on financial prudence driving strong results.

Revenue increased by 15.7% in 2023 and 21.9% in 2024. In the latest fourth-quarter results, Meta achieved an impressive 48% operating margin, a significant rise from just 20% two years prior. This solid performance is a key reason for the upswing in Meta’s stock price.

Aiming High in AI

Like many technology giants, Meta is heavily investing in AI, planning to spend $39 billion on capital expenditures (capex) in 2024.

During the fourth-quarter earnings call, CFO Susan Li stated, “For the full year 2025, capital expenses will be between $60 billion to $65 billion, driven by greater investment in our generative AI projects and core business.” This substantial investment is aimed at enhancing technological infrastructure.

Meta has already introduced AI features for its social media platforms, aiding users in gathering information, editing photos, and creating content. Additionally, the company had notable success in selling 1 million pairs of Ray-Ban smart glasses last year.

Meta is also providing marketers with tools to create more effective campaigns, with over 4 million advertising customers utilizing its generative AI features. The goal is straightforward: use this technology to enhance user growth and engagement.

For advertisers, maximizing return on investment is paramount, encouraging greater spending on Meta’s platforms.

Financial Dominance

Few companies can match Meta’s capacity to invest heavily in AI due to its strong financial position.

As of December 31, Meta reported $77.8 billion in cash, cash equivalents, and marketable securities, far surpassing its long-term debt of $28.8 billion. Moreover, the company generated $52.6 billion in annualized free cash flow during the fourth quarter, presenting minimal financial risk.

Adding to its advantages, Meta boasts a vast base of 3.35 billion daily active users across its platforms, an increase of 5% year-over-year during the fourth quarter. This robust user base creates powerful network effects that strengthen Meta’s competitive stance.

The Price Tag for Meta

Currently, Meta shares have a price-to-earnings ratio of 29.8. This is higher than the trailing five-year average, reflecting the stock’s dramatic rise since 2022.

Though this valuation is not a bargain, it remains a reasonable entry point for new investors. Over the past three years, diluted earnings per share grew at an annual compound rate of 20.1%. This growth justifies the current valuation for owning one of the leading companies in the industry.

Seize Your Opportunity

Do you worry you missed out on purchasing successful stocks? If so, consider this.

Occasionally, our expert analysts issue a “Double Down” stock recommendation for companies poised for growth. If you’re concerned that the moment to invest has passed, now may be the best time to act before it’s too late. The numbers speak for themselves:

• Nvidia: Investing $1,000 back in 2009 would have grown to $336,677!
• Apple: A $1,000 investment in 2008 would be worth $43,109!
• Netflix: Investing $1,000 in 2004 would have turned into $546,804!

Currently, we’re providing “Double Down” alerts for three exceptional companies, and opportunities like this are rare.

Learn more »

*Stock Advisor returns as of February 3, 2025

Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board. Neil Patel and his clients hold no positions in the stocks mentioned. The Motley Fool recommends Meta Platforms among others and has a disclosure policy.

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