Wealthy entrepreneur Mark Zuckerberg has effectively positioned Meta as a pioneer in the realm of generative AI. Yet, one may ponder, is this a solid investment opportunity?
Maybe no corporation in history has burned as much money on a project as Meta Platforms Inc. (META shedding -1.65%). This social media heavyweight has poured billions into Reality Labs, its division responsible for Meta's version of the metaverse (currently appearing as a flop) and Quest VR headsets (struggling to gain popularity).
Yet, Reality Labs is also where Meta's AI initiatives reside, and the staggering investments into Reality Labs are starting to yield returns.
Meta's AI Endeavors
Meta began its AI explorations over a decade ago, primarily focusing on facial recognition technology. It later shifted to machine learning, virtual reality, and the metaverse. However, it seems to have struck gold with its Llama large language model, now at version 3.2.
Upon launching Llama 3.1 in July, Meta claimed it to be the "world's largest and most capable openly available foundation model." During the third-quarter earnings call, CEO Mark Zuckerberg confirmed that Llama had rapidly become industry standard.
Llama is also the driving force behind Meta AI, Meta's AI-powered chatbot available across its four social media platforms -- Facebook, Instagram, WhatsApp, and Messenger. Meta AI has silently emerged as a leader in generative AI.
According to Meta's third-quarter report, Meta AI boasted over 500 million monthly active users, with its AI investments showing positive results in increased usage time on Facebook by 8% and Instagram by 6%. Furthermore, over 1 million advertisers utilized Meta AI's generative AI tools to create over 15 million ads in October.
Zuckerberg forecasted that Meta AI would surpass all other AI chatbots, including OpenAI's ChatGPT and Alphabet's Gemini, by year's end.
Moreover, Meta has collaborated with Ray-Ban to develop smart glasses featuring built-in Meta AI, allowing for real-time questioning of objects in sight.
Smartwear AI devices have faced challenges, with Quest sales remaining low and Apple cutting back production on its Vision Pro. However, Meta's Ray-Ban smart glasses may emerge as the best product in this category, as they closely resemble ordinary sunglasses and Ray-Ban's brand reputation could aid adoption.
Should You Invest in Meta Platforms?
Generative AI remains a gamble, and it's uncertain if the billions poured into this new technology will pay off.
However, two points are evident at present. First, Meta AI has garnered a significant user base, and holding the most substantial user base among AI chatbots offers a competitive edge. Second, Meta's advertising business, backed by its AI infrastructure, continues to thrive, as evidenced by its third-quarter revenue jump of 19% to $39.9 billion, accounting for nearly all of its $40.6 billion total revenue.
Meta's advertising business also boasts high operating margins, ending the third quarter with a 43% operating margin and $17.3 billion in operating income, despite a $4.4 billion loss from Reality Labs in the quarter.
Basically, Meta Platforms continues to grow swiftly, deliver substantial profit margins, and offers great value at a price-to-earnings ratio of 27 – equivalent to the S&P 500 index, despite its faster growth rate.
Given its strong growth rate, fair valuation, and leading AI chatbot, Meta Platforms stock remains an attractive buy.
Given Meta's significant investments in AI, particularly with the success of Llama 3.2 and its AI-powered chatbot, which has over 500 million monthly active users and is increasing usage time on Facebook and Instagram, it might be worth considering the financial aspects of investing in Meta Platforms. The company's advertising business, powered by its AI infrastructure, continues to thrive, as evidenced by its third-quarter revenue jump of 19%, suggesting that Meta's AI endeavors could potentially bring lucrative returns for interested investors.
