Meta and Alphabet Stocks Present Attractive Buying Opportunities

As concerns about a trade war and looming economic recession grow, the Nasdaq Composite has entered correction territory, dropping over 10% from its mid-December high. This downturn has resulted in numerous quality stocks reaching appealing entry points for potential investors.

Among these, Meta Platforms (NASDAQ: META) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) stand out. Both companies are the world leaders in digital advertising. While a softening economy could temporarily impact their advertising revenue, their strong market positions suggest resilience. Advertisers often favor these companies’ effective performance-based digital marketing platforms even during budget cuts.

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Investing in Meta Platforms

Meta, the second-largest digital advertising platform globally, is gradually increasing its market share. The company operates several social media and messaging platforms, including Facebook and Instagram.

The firm is heavily investing in artificial intelligence (AI), specifically its Llama model. This focus has led to higher user engagement as people spend more time on its platforms, while it simultaneously connects advertisers with consumers more effectively. Evidence of this success can be seen in last quarter’s performance, where Meta’s revenue rose 21%, fueled by a 6% increase in ad impressions and a 14% rise in average ad prices.

Meta also has significant potential with its latest social media offering, Threads. Historically, the company has excelled at developing social media platforms, growing their user bases, and monetizing them through advertising later on. Currently, Threads has reached 320 million monthly active users and is expanding by approximately 1 million daily users.

Once threading reaches the monetization stage, it could serve as a robust growth driver for Meta. The company’s ability to generate revenue from its user base, particularly in international markets, is unmatched. For instance, in the last quarter, Meta’s global average revenue per user (ARPU) was a remarkable $14.25, compared to Snap’s $3.44 and Pinterest’s $2.12.

Analyzing Alphabet

While Meta has been making gains, Alphabet’s Google search engine remains the largest platform in digital media advertising, with YouTube ranked fourth. Advertisers pay Google based on user search queries, making their search advertising model highly resilient during economic downturns.

Like Meta, Alphabet is also advancing in AI with its Gemini model. Gemini enhances search results and enables AI-generated summaries to quickly address user queries. This feature presents an opportunity for Alphabet to introduce new ad formats, as they currently serve ads on only about 20% of user queries.

Additionally, Alphabet is developing a stand-alone Gemini app to compete against entities like ChatGPT and Claude. Although currently behind, the latest Gemini 2.0 version shows progress. Furthermore, Alphabet’s Veo 2 text-to-video AI engine demonstrates strong potential due to its training on YouTube videos.

Beyond its advertising business, Alphabet has a rapidly growing cloud computing division. Utilizing Gemini as a foundational model, the company assists customers in creating customized AI models and applications. Currently facing capacity constraints, Alphabet is investing in new data centers to meet increasing demand.

Alphabet’s innovative ventures also include breakthroughs in quantum computing with the Willow chip, which reduces error rates while scaling. Moreover, its Waymo robotaxi service remains at the forefront of the industry, being the only provider of paid rides in the U.S., and is now exploring expansions into new U.S. cities and Tokyo.

Image source: Getty Images.

Long-Term Investment Potential

Both Meta and Alphabet have experienced about a 20% decline from their recent peaks as of this writing. Despite their reliance on advertising, both companies boast strong market positions and numerous growth avenues, making it an excellent time for long-term investments.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also a member of The Motley Fool’s board. Geoffrey Seiler has positions in Alphabet and Pinterest. The Motley Fool recommends Alphabet, Meta Platforms, and Pinterest. 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.