The S&P 500 recently reached historic heights, but standing tall among the elite is Meta Platforms (NASDAQ: META) – the phoenix that has risen from the ashes of a dismal stock price just two short years ago, now leading the charge in the realm of artificial intelligence (AI) and showcasing phenomenal success in its core advertising sector. Investors are buzzing with excitement, witnessing the stock catapult over 500% from its nadir back to the present day.

Let us delve into the catalysts propelling this remarkable ascent and explore the potential for Meta to scale even greater heights.

Image source: Getty Images.

The Ascendancy in AI

Nvidia reigns supreme in the AI hardware arena, but the true prowess lies not just in the silicon chips themselves. It hinges on the innovation and implementation of products leveraging such hardware, an arena where Meta Platforms shines like a beacon in the night.

At the recent Meta Connect Conference, CEO Mark Zuckerberg proudly proclaimed that Meta AI boasts nearly half a billion monthly active users, poised to become the foremost AI assistant globally, surpassing the likes of ChatGPT, Microsoft Copilot, and Alphabet’s Google Gemini. Indeed, almost half of the world’s populace engages daily with a Meta platform – from Facebook to WhatsApp – furnishing the company a transcendent edge over rivals and a conduit for seamlessly introducing cutting-edge tech to its vast user base.

With the advent of its robust language model, Llama, Meta’s vertical integration stands peerless. The rollout of an array of new features enabling direct interactions with Meta AI, photo sharing functionalities, and customizable AI resources for businesses underscores the extensive outreach of its technology. Over a million advertisers leveraging its generative AI tools to craft ads further underscore the pervasive influence of its technology, significantly outperforming non-AI counterparts.

Radiance in the Core Business

Meta’s advertising arm weathered a tumultuous period during the industry downturn in 2022, while firms braced for an anticipated recession that failed to materialize.

However, the advertising division staged a triumphant resurgence owing to strategic initiatives such as Reels, the proliferation of AI and e-commerce tools, and a burgeoning user base that continues to expand.

Remarkably, Meta outpaces other major advertising platforms in growth metrics. In the second quarter alone, advertising revenue soared by an impressive 22% to $38.3 billion. By contrast, Alphabet reported only a 14% surge in revenue at Google Search and a 13% uptick at YouTube, while its Google Network segment, serving ads on third-party domains, witnessed a decline.

Even Amazon, traditionally outperforming Alphabet and Meta, reported a 20% revenue growth to $12.8 billion in the same quarter, surpassing smaller social media platforms like Pinterest and Snap.

The Trajectory for Further Growth

Despite Meta’s stock potentially appearing overvalued with a price-to-earnings ratio of 29, the company consistently outperforms earnings projections in recent quarters, backed by a myriad of growth catalysts at its disposal.

Meta maintains an aggressive investment stance in its Reality Labs segment, channeling billions annually into the AI engine and transformative projects like the metaverse. There exists room for financial prudence, as the company showcased during its period of operational efficiency in response to investor sentiment.

Making significant strides in hardware, Meta’s Quest virtual-reality devices, collaboration with Ray-Ban for smart glasses, and the recent unveiling of Orion augmented-reality (AR) glasses – albeit slated for commercial launch years down the line – affirm the company’s commitment to pioneering advancements. Brandishing Orion as the most advanced AR glasses globally, Meta asserts that the substantial R&D investments will fuel a continuum of innovative devices akin to Orion.

The novel devices may be likened to ambitious moonshots; even if one pays off, the returns for Meta could be monumental. Yet, the current valuation appears to understate the potential of these devices, which might burgeon into a significant segment of Meta’s business within the next decade.

Simultaneously, the adept management of Meta in the advertising milieu positions the company as a stalwart in AI leadership. Undoubtedly, Meta Platforms is poised for an exodus to loftier echelons of growth, and as it continues to deliver on its promises, the stock shall ascend unabated.

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John Mackey, a erstwhile CEO of Whole Foods Market and now an Amazon subsidiary, sits on The Motley Fool’s board of directors. Joining the ranks is Randi Zuckerberg, enterprises as a former director of market development and spokesperson for Facebook, and the sibling of Meta Platforms CEO Mark Zuckerberg. Suzanne Frey, an executive at Alphabet, also graces The Motley Fool’s board. Jeremy Bowman stakes positions in Amazon, Meta Platforms, and Pinterest. The Motley Fool holds stakes in and endorses Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Pinterest. Comprehend our disclosure policy within.