As the artificial intelligence (AI) revolution continues going full steam ahead, much of the attention is still focused on Nvidia -- and for good reason: The company's hardware is the beating heart of the entire industry. Its chips power servers across Silicon Valley, training and running AI models old and new.
Although Nvidia continues to dominate the market, some investors are surely disappointed with the recent performance of its stock. In the weeks since its latest earnings were released, shares of the company are trading lower, even though the company beat Wall Street's expectations and posted record sales. Should you look for greener pastures?
Wall Street's biggest players can be a guide
The Motley Fool recently analyzed the most popular AI stocks among Wall Street's biggest hedge funds and the billionaires who run them. Some patterns emerged.
There will always be different beliefs, assumptions, and strategies governing what and how much these managers hold in their portfolios. This often means there's little agreement between them. Some will love a stock, while others want nothing to do with it.
Other times, however, there's consensus, and this is what investors are especially interested in. If a majority of the most successful investors around agree a stock is a good pick, that's useful information. It shouldn't be taken as gospel -- fund managers can get it wrong, just like everyone else -- but it can help investors make their own informed decisions.
Meta Platforms is a clear favorite -- and for good reason
Meta Platforms (META -0.59%) emerged as one of the top picks. It ranked among the Top 10 holdings in 11 out of the 16 funds analyzed. And in those 11 funds, nine held Meta among their Top 5 investments, including Chase Coleman's Tiger Global, which has Meta in its No. 1 spot. His fund has 18.8% of its nearly $10 billion invested in the company.
There's a lot to like about Meta. The company is still firing on all cylinders in its core business -- its social media platforms reach about 3.29 billion people daily. It runs the most popular social media platform in the world (Facebook), as well as the third (WhatsApp), fourth (Instagram), and seventh (Messenger). The company has influence, to say the least.
That influence is valuable. Meta rakes in cash from the space it sells to advertisers -- more than $40 billion last quarter -- and delivered double-digit revenue growth every quarter since Q1 2023. All signs point to this continuing, as user growth continues and demand for ad space remains strong.
Beyond its bread-and-butter businesses, the company released its namesake consumer AI platform Meta AI this year. Given the reach of the company's social media platforms, Meta AI is quickly being adopted the world over. Meta has also done what Alphabet couldn't with its ill-fated Google Glass -- successfully launch a line of Ray-Ban eyeglasses with Meta AI integration.
While these products are impressive, Meta's true AI potential is happening behind the scenes. The company is at the forefront of AI research, having invested heavily in it for years. The intellectual property (IP) and products that come out of this research have the potential to open up new and significant revenue channels for the company.
Meta spent more than $9 billion in capital expenditures last quarter, much of which went toward its AI development programs. Incredibly, despite this enormous spend, Meta's free cash flow is growing, up 42% in the last year.
Even with everything it has going for it, Meta remains reasonably priced, compared to its peers. Take a look at this chart showing its forward price-to-earnings ratio (P/E).
META PE Ratio (Forward) data by YCharts.
There's plenty of room at the table
Now to the question at hand: Should you forget Nvidia and buy Meta, instead? I don't think so. Why choose one?
Meta is undoubtedly a great pick, but Nvidia still has a lot of room to run. It also happens to be a favorite of many of Wall Street's billionaires, appearing at the top of several funds. Both of these stocks will likely continue to lead the AI industry and outperform the broader market.
