Artificial intelligence (AI) is all the rage on Wall Street these days. AI technology has the potential to transform many aspects of the world around us, but it may be a slower process than some expect. Many companies talk about AI, but far fewer have made real-world progress.
AI Chip Superstar NVIDIA is the most obvious exception, but is it the best AI stock you can buy today? I don't think so. Some great AI companies just aren't getting the same amount of attention. Meta Platform (Nasdaq: META)The company is best known for its social media empire, but CEO Mark Zuckerberg's push into AI technology has posed long-term uncertainty for investors.
Here's why Meta Platforms is by far the best AI stock to buy today.
Meta is focused on building AI
Today, deep-pocketed technology companies are investing billions of dollars to amass the breadth of computing power needed to develop, train, and use AI models. Meta is one of the companies at the forefront. Earlier this year, Zuckerberg revealed that Meta aims to amass 350,000 of NVIDIA's flagship H100 graphics processing chips by the end of the year. This would bring Meta's total chip holdings to roughly 600,000 H100-equivalent computing power.
The H100 chips are easily optimized for AI workloads, which is why they've established themselves as the must-have AI chip in the tech industry today. These chips cost more than $40,000 each, but they underscore Meta's significant investment in AI: management expects capital expenditures to be between $35 billion and $40 billion in 2024.
Zuckerberg noted that AI will be prevalent in Meta's business. The company has already developed a large-scale language model, Llama 3, which it has integrated into its social media apps, and rolled out AI tools to help advertisers optimize their marketing budgets. AI will continue to appear in Meta's augmented reality business, including its Quest headset line and Ray-Ban Meta smart glasses.
Enhancements to Meta's cache engine
Meta is already a large, profitable company, and its AI efforts add to that, as the company hopes AI can help it bolster its existing business, which is largely focused on social media advertising, and unlock new revenue streams.
Meta isn't going to borrow money to build AI or neglect other parts of the company. It's a rare kind of business, and it's so profitable that it can invest this much cash with little to no near-term return and still grow free cash flow.
These strong financials make Meta a much less risky AI stock. AI may end up being a passing fad (I don't think so), but Meta will remain one of the best companies you can invest in. Even mighty Nvidia would be in serious trouble if all these big tech companies stopped buying hundreds of thousands of its AI chips.
The perfect ending
The company's stock is inexplicably undervalued, making the Meta acquisition a no-brainer. It seems odd to call Meta undervalued, given that its stock has risen over 80% over the past year, but a look at the numbers shows just how undervalued the stock is right now.
Analysts expect Meta to earn $20.16 per share this year, valuing the company at a price-to-earnings multiple of 24. Analysts also expect Meta to grow earnings at least 19% annually over the next three to five years. Note that Meta's Reality Labs division is currently losing money and therefore struggling to grow profits. The division may make a comeback at some point.
I use the PEG ratio to assess how attractive a stock's valuation is relative to a company's expected growth rate. Meta's PEG ratio is currently 1.3, which makes this a nice trade if the business can meet growth estimates.
At this point, no forecasts or estimates are guaranteed, so investors should consider the possibility that Meta will fall short of its targets. However, the company has invested tens of billions of dollars and has a track record of generating excellent returns on that capital. With a 10-year average return on invested capital (ROIC) of 21%, this means that Meta can expect to earn approximately $1.21 in profits for every dollar invested in the business.
That should mean great performance and big profits for long-term investors.
Should I invest $1,000 in Meta Platforms right now?
Before you buy Meta Platforms shares, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy now…Meta Platforms was not included. The 10 selected stocks have the potential to generate big gains over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $740,688.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.
View 10 stocks »
*Stock Advisor returns as of June 3, 2024
Randi Zuckerberg is a former director of market development and public relations for Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Here are my top artificial intelligence (AI) stocks. No other stocks compare. This was originally published by The Motley Fool.
