Stock buyers looking for hot investing trends to take advantage of are likely aware that artificial intelligence (AI) has been the top trending sector over the past couple of years. However, finding pure-play AI stocks that are worth buying has been tougher because doing AI well involves significant financial resources. More often, the top AI investments have been tech companies with AI segments that are just a part of a broader business. One of these AI-adjacent companies that appears unstoppable is Meta Platforms (META -1.22%), the parent company of Facebook.
Meta is taking a unique approach to the generative AI arms race; it's making its model free to use and build on. 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 predominantly a digital advertising company. In the third quarter, Meta generated $40.6 billion in revenue; $39.9 billion came from advertising that appears on its various social media properties. While Meta hopes to diversify its revenue streams by being the AR and VR space leader, other investments (like AI) are being made to help maximize its ad profitability.
This is why Meta chose to make its generative AI platform free. By making it 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 looks poised to go higher based on its current financial picture.
Meta is expected to have another market-beating 2025
Meta had a tremendous 2024, with strong revenue and earnings-per-share (EPS) growth in multiple quarters. In Q3, its revenue was up 19% year over year and its EPS was up 37%. The double-digit-percentage growth is expected to continue in 2025, with Wall Street analysts projecting 15% revenue growth and 12% EPS growth. Analysts forecast that Meta will ramp up its AI spending in 2025, which is why its EPS growth is lower than revenue growth.
Despite the strong 2024, Meta stock still trades at a fairly attractive price point.
Data by YCharts.
Trading at 24 times forward earnings, Meta is cheaper than many of its big tech counterparts despite growing at a faster pace. Stocks in the Nasdaq-100 average a forward P/E of 26.4. Given its reasonable valuation and its potential for above-average growth, I wouldn't be surprised if Meta has another strong year in 2025.
Meta is a company that has a history of producing 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.
