In the financial world, the term "Magnificent Seven" is a fun moniker used to collectively refer to the largest artificial intelligence (AI) stocks in the world: Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla.
Among this cohort, Meta and Tesla capture the two bottom spots as measured by market cap. While each of these trillion-dollar stocks have a number of AI tailwinds that could fuel growth in the long run, I see 2025 as a potentially challenging year for Meta in particular.
I'm going to dig into the details of a rather unique scenario involving Meta and Broadcom (AVGO 2.59%) and make the case for why Broadcom could emerge as the more valuable company by the end of the year.
Meta just made a major announcement
Back in December, Wedbush technology research analyst Dan Ives published a brief report outlining his market predictions in 2025. One item on this list was a forecast calling for $1 trillion of AI-related infrastructure spend just this year.
Well, less than one month into the new year, I think Ives just might be right. Over the last few weeks, many tech titans have stepped up and made clear that 2025 is going to be a year involving significant capital expenditure (capex) investments.
Microsoft alone is projecting $80 billion of infrastructure spend for data centers in 2025; meanwhile, OpenAI, Oracle, and SoftBank are leading the newly announced Stargate initiative under President Trump -- a project aiming to invest $500 billion into AI frameworks over the coming years.
Just days ago, Meta announced that it's joining its megacap tech peers with a spending spree of its own. According to reports, Meta plans to spend between $60 billion to $65 billion in capex this year across a number of infrastructure needs, including chips, data centers, and servers.
Image source: Getty Images.
Why I think this AI spend will put pressure on Meta in the near term
On the surface, you might think Meta's commitment to an AI roadmap is a good thing. While I agree with this sentiment, there is a caveat: I think Meta will become one of the leading AI enterprises in the world down the road... but in the near term, I'm predicting that a $65 billion infrastructure project is going to put some major pressure on Mark Zuckerberg and his executive leadership team. Why? Because people don't forget the past.
Allow me to explain what I mean by that. On Oct. 28, 2021, Meta changed its name from Facebook to Meta Platforms. This moment marked a shift in the company's primary focus areas -- expanding from social media applications to a deeper form of engagement in leveraging virtual reality. This concept is known as the metaverse, and for a hot minute, it became all anything the investment world could talk about.
In the chart, I've illustrated the percentage changes among Meta's stock price, free cash flow, and capex investments from its name change in October 2021 through the end of 2022. The dynamics depicted make one thing quite clear: The company's metaverse spend rose significantly, so much so that its profitability profile became extremely protracted. Unsurprisingly, investors weren't thrilled with this inverse relationship, and Meta stock tanked by more than 60%.
Meta's hefty AI bill could be music to Broadcom's ears
For the most part, Magnificent Seven companies dominate any rhetoric related to AI. But for the last couple of years, Broadcom has quietly become one of the more influential players in the AI arena. The reason for this is that many of the world's leading AI businesses rely heavily on Broadcom's networking and infrastructure solutions.
Broadcom offers a host of products ranging from cloud security, semiconductors, networking equipment, and much more. If you're investing in data center infrastructure, odds are Broadcom is involved somewhere along the way.
According to reports out of DigiTimes and TechRadar, Meta is rumored to be a major customer of Broadcom's custom application-specific integrated circuit (ASIC) chips. To me, Meta's capex spend this year should serve as a bellwether for Broadcom's AI business.
Why Broadcom could eclipse Meta in 2025
As of this writing, Meta's market capitalization of $1.6 trillion is about 14% higher than Broadcom's valuation of $1.1 trillion.
While a 14% share price increase is quite meaningful, I think it's within the realm of possibility for Broadcom this year. After all, the company's shares gained 108% in 2024 -- and that was really the first year Broadcom started benefiting from rising AI infrastructure spend.
In my eyes, Broadcom's moment has arrived, and so long as hyperscalers remain committed to data center build-outs, the company should experience some meaningful tailwinds.
I can't help but think investors are going to be laser focused on Meta's spend and cash flow profiles this year, given the metaverse debacle from a few years ago. Should there be any signs of a hiccup as it pertains to profitability, Meta's stock could start selling off in a meaningful way.
Furthermore, even if Meta manages to accelerate revenue and earnings in light of this hefty capex budget, it's hard to know what growth rates will be considered acceptable by investors, now that expectations are exceedingly high and the pressure is on for the company to execute.
Rising infrastructure spend bodes well for Broadcom's growth prospects this year; yet paradoxically, these dynamics could represent a headwind to Meta's near-term share price appreciation. For these reasons, I think Broadcom could become a more valuable stock than Meta by year-end.
