There are very few companies devoted solely to artificial intelligence (AI) that investors can buy. It takes significant financial resources to play in this game, so the big tech companies are some of the best ways to invest in this trend. One that appears unstoppable is Meta Platforms (META 2.86%), the parent company of Facebook.
Meta is taking a unique approach to the generative AI arms race; it's making its model open-source. This is a stark difference from many of its competitors, but it could be a bet that pays off massively over the long run. I think this bodes well for Meta and could be a catalyst for the stock to soar.
What is Meta using AI for?
Even though Meta has significant investments in AI, augmented reality (AR), and virtual reality (VR), it's just an ad company at the end of the day. In the third quarter, Meta generated $40.6 billion in revenue; $39.9 billion came from ads. While Meta hopes to diversify its revenue streams by being the AR and VR space leader, other investments (like AI) are tailored to maximize its ad profitability.
This is why Meta chose to make its generative AI platform open-source.
By making it open-source and free to use, Meta's AI is more attractive to users than models that you have to pay for. By interacting with and using Meta's AI, you're providing training and data points for the model so it can better understand you. With that information, Meta can create ads targeted specifically for you.
Meta is also training its AI for use in its Orion AR glasses, which could be the first useful smart glasses to hit the market. Although these are too expensive for the average consumer (Meta wants to get the price point down to the cost of a smartphone), these could provide contextualized AI assistants that see what we see, which unlocks a whole new level of AI integration into society.
Meta's AI investments may not directly affect its revenue statements, but the research it is conducting is important in ensuring its other products are top-of-the-line and incorporate the latest technology. Still, even with AI not being a huge factor in Meta's revenue, the stock still looks poised to go higher based on its current financial picture.
Meta is expected to have another market-beating 2025
Meta has had a tremendous 2024, with strong revenue and earnings-per-share (EPS) growth in multiple quarters. In Q3, its revenue was up 19%, and EPS was up 37%. That pattern is expected to continue in 2025, with Wall Street analysts projecting 15% revenue growth and 12% EPS growth.
Analysts are expecting Meta to ramp up its AI spending in 2025, which is why its EPS growth is lower than revenue growth. However, this is necessary to compete in the AI arms race.
Still, Meta trades at a fairly attractive price point.
META PE Ratio (Forward) data by YCharts
At 24 times forward earnings, Meta is cheaper than many of its big tech counterparts despite growing at a faster pace. The Nasdaq-100 trades at 26.4 times forward earnings, making it cheaper than the most commonly used tech index.
As a result, I wouldn't be surprised if Meta has another strong year in 2025. However, Meta is a company that can consistently produce market-beating returns. This makes it a great stock to buy and hold for the long term, as I'm confident the stock can beat the market over the next five years.
