The artificial intelligence (AI) space is red-hot right now. Companies across every industry are looking to capitalize on the technology, and are investing heavily to gain an edge over the competition. That’s true in the social media space, where advertisers are keen to get in front of the right audience for them.
While the social media landscape is jam-packed with competition, one company is separating itself from the pack. Meta Platforms(NASDAQ: META) is making strides across various aspects of the AI realm, and its performance over the competition shows.
Let’s dig in to why now is a lucrative opportunity to invest in Meta as the long-term AI narrative plays out.
The profit machine is up and running
One of the most appealing aspects of Meta is how efficiently management runs the business. In 2023, Meta grew revenue 16% year over year to $135 billion. However, the company increased income from operations by a whopping 62% year over year to $46.7 billion.
By expanding its operating margin, Meta recognized significant growth on the bottom line as well. Last year, the company generated $43 billion in free cash flow. With such a robust financial profile, Meta is well-positioned to invest profits back into the business as well as reward shareholders.
Image source: Getty Images.
Investing for the future
During Meta’s fourth-quarter earnings call in February, investors learned how the company is deploying its cash heap. For starters, it has increased its share repurchase program by $50 billion. This is encouraging to see as it could imply that management views Meta stock as a good value.
But perhaps more exciting was the announcement of a quarterly dividend. Many high-growth tech companies are not in a financial position to pay a dividend — or instead choose to reinvest profits into research and development or marketing strategies. Meta’s new dividend certainly sets the company apart from many of its peers, and is a nice sweetener for long-term shareholders.
Another way Meta is using its cash flow is in the realm of artificial intelligence. Like many enterprises, Meta relies heavily on sophisticated graphics processing units (GPUs) from Nvidia. However, Meta has been hinting for a while that the company is investing in its own hardware. Earlier this month, Meta announced that an updated version of its training and inference chips, called MTIA, is now available.
This is important for a couple of reasons. Namely, in-house chips will allow Meta to “control the whole stack” and scale back its reliance on semiconductors from third parties. Additionally, given the company’s knowledge base of data that it collects from social media platforms Facebook, Instagram, and WhatsApp, these new chips put Meta in a position to improve its targeted recommendation models and ad campaigns through the power of generative AI.
A compelling valuation
Meta competes with a number of players in the social media landscape. Alphabet is one of the company’s top competitors given that it operates the world’s top-two most visited websites: YouTube and Google. However, in 2023 Alphabet only grew its core advertising business by 6% year over year. By contrast, Meta’s advertising segment increased 16%.
While Meta’s price-to-sales (P/S) ratio of 10 is higher than many of its social media peers, the company’s growth in the highly competitive and cyclical advertising landscape may warrant the premium.
META PS Ratio Chart
Additionally, considering Meta’s price-to-free-cash-flow ratio of about 31 is actually trading relatively in line with its 10-year average of 32, the stock might not be as expensive as it appears.
Overall, I am optimistic about Meta’s aggressive ambitions in artificial intelligence — an investment that is yet to play out. The AI narrative is going to be a long-term story. But I see Meta as extremely well-equipped to take advantage of secular themes fueling AI, and benefiting across its entire business.
The combination of a dividend, share buybacks, consistent cash flow, and a compelling AI play make Meta stick out in a highly contested AI landscape. I think now is a great opportunity to scoop up shares in Meta and prepare to hold for the long term.
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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
