Analysts at Next Move Strategy Consulting expect the global artificial intelligence (AI) market to grow 20-fold to a whopping $2 trillion by 2030 as the technology improves and major companies build out their offerings. Tech giant Nvidia is one of the undisputed winners in this megatrend as is supplies the advanced chips needed to power and train AI models.
But investors should also pay attention to other companies tackling different sides of the opportunity. Let's explore how the efforts of Amazon (AMZN -1.74%) and Meta Platforms (META 1.02%) could also richly reward investors.
Amazon
First an online bookstore, then a global e-commerce giant, and now a diversified technology behemoth -- Amazon has a long history of reinventing itself through new business verticals. This tendency allowed the company to continue expanding, even as its older ventures mature. AI could help power the next leg of long-term growth.
According to Amazon CEO Andy Jassy, generative AI is the "biggest technological transformation of our lifetimes." But instead of chasing the hype of consumer-facing chatbots like ChatGPT (which has begun to see its usage decline), Amazon is focused on substance -- providing the background infrastructure needed to support the industry.
To pull off this strategy, Amazon launched Bedrock, an AI model that AWS clients can train and customize with their own data. If successful, this platform could be a valuable tool for countless start-ups aiming to develop their own AI applications. Amazon's pick-and-shovel approach to AI complements its enterprise-focused cloud computing business and shields it from some of the competition and uncertainty involved in targeting the consumer side of the opportunity.
Investors should remember that Amazon's AI ambitions are not limited to AWS and enterprise clients. AI technology can also improve other aspects of its business, like search efficiency, customer support, and Alexa (Amazon's virtual assistant technology). The company seems to be at the opening stages of another massive transformation.
Meta Platforms
Like Amazon, Meta Platforms is another large technology company seeking to reinvent itself as its core business (social media advertising) matures. But while its metaverse ambitions leave much to be desired, AI could soon catalyze the company's transformation.
Image source: Getty Images.
Facebook changed its name to Meta Platforms in 2021, but its efforts to create an immersive virtual world haven't taken off. Horizon Worlds, its flagship virtual reality (VR) gaming platform, reported 200,000 users at the end of 2022 -- far short of an original target of 500,000. That said, Meta's shares surged nearly 150% in 2023 as investors become increasingly optimistic that AI technology could soon save the day.
Following the launch of OpenAI's ChatGPT, Meta Platforms began investing heavily in its AI initiatives to improve its existing products and services. There is a lot of low-hanging fruit -- for example, imagine text-to-speech photo editing for Instagram and Facebook or AI-powered chatbots on WhatsApp that can have human-like conversations with users and collect new types of data. But Meta also has the potential to use AI to create new revenue streams.
The company is building new AI-related platforms like AudioCraft, designed to allow users to create music based on text prompts. These efforts can help boost growth and diversify Meta's top line.
Comparing the valuations
With a price-to-earnings (P/E) multiple of 42, Amazon shares trade for a significant premium over the S&P 500 average of 26, and this likely reflects the company's blue-chip status and the relative safety of its AI strategy. On the other hand, Meta Platforms has a P/E of just 19, which is lower than the market average.
Investors might be worried about Meta Platforms' metaverse flop and the weaker moat of its AI projects relative to alternatives. With that said, the company's low price tag leaves more upside potential if its efforts succeed, making the stock still look like a buy.
