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.

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.

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.

Should you invest $1,000 in Meta Platforms right now?

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A Once-in-a-Generation Investment Opportunity: 1 Sizzling Artificial Intelligence (AI) Stock to Buy Hand Over Fist in April was originally published by The Motley Fool

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(Bloomberg) — The growth equity unit of Goldman Sachs Group Inc. has invested $47.5 million in Kontakt.io, a startup that helps hospital managers make decisions about patients, beds and equipment.

It’s the 39th investment in health care from the bank’s growth equity division and the deal is “a good example of what is coming down the pipe” for its portfolio, according to Christian Resch, the UK-based the Goldman partner who led the financing and will sit on Kontakt.io’s board.

Kontakt.io, formed in Poland in 2014, makes small bluetooth-connected devices that stick on hospital equipment and software for managing the data collected by the sensors. The idea is to track practically everything inside a hospital — from patient beds to ultrasound machines — to help managers make decisions about capacity and replacement. The startup wants to build out an AI system that can offer suggestions to managers. It bills for the entire tracking system, rather than solo sensors. 

Philipp von Gilsa, Kontakt.io’s chief executive officer, said his business helps health-care operators curb inefficiencies and manage pressures like crippling nursing shortages. “Hospitals are extremely, extremely wasteful in how they treat their resources,” he said. “We help them address that and, at the end of the day, save money.”

Health-care and life sciences IT spend is expected to continue rising, growing 8.3% in 2023 to $245.8 billion, according to Gartner estimates. But that money hasn’t always found its way to startups, which have struggled to compete with entrenched medical suppliers and navigate byzantine health-care networks. While many startups offer tools for managing health records or apps for patient use, Kontakt.io is focused on operations. The company pointed to a 2019 study that found roughly a quarter of US health spending was wasted due to issues like fraud and administrative hassles. 

Kontakt.io has largely grown without major outside capital. It first marketed to a range of sectors interested in tracking indoor data, but has since homed in on health care, which now provides 80% of its sales, according to von Gilsa. 

The startup has “roughly 500” enterprise customers, he said, including HCA Healthcare Inc. and the UK’s National Health Service. Von Gilsa declined to share revenue but said 2022 sales exceeded the $7.5 million his company raised before Goldman’s funding, and revenues tripled in the last twelve months. Kontakt.io, he said, has been profitable for the last four years. 

With the financing, which came solely from Goldman, von Gilsa plans to hire more engineers to build an automated system for hospital staff using artificial intelligence. Machines will offer recommendations for daily decisions like how to stock certain machines or when to move patients into surgery.

Some 4 million devices in circulation give the startup an edge in building this AI, according to von Gilsa, who said the large quantities of data gathered by Kontakt.io sensors can help train its models.

Larger rivals, like GE HealthCare Technologies Inc., have also touted recent AI features designed to streamline hospital operations. Goldman’s Resch said Kontakt.io’s integration of sensors and software gave the bank confidence in its prospects. 

©2024 Bloomberg L.P.

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It’s been a wild ride for investors of Alongquin Power & Utilities (TSX:AQN) over the last few years. And honestly, not in a good way. Shares of Algonquin stock have shrunk lower and lower over the last five years, and remain down in 2024.

But there is one income stream of interest that keeps investors around, and that’s the company’s dividend. After slashing it to help strengthen its bottom line, Algonquin stock now offers a 6.93% dividend yield as of writing. But, is that enough?

What happened

First off, let’s discuss why Algonquin stock cut its dividend in the first place. The utility stock did this back in January 2023, for a few reasons that would help its overall financial health. Rising interest rates was one of them, since the company is holding a significant amount of debt with variable interest rates. And as rates rose, so too did their interest expenses.

The company also saw lower cash flow throughout 2022. This limited its ability to fund further projects, while maintaining the previous dividend level. Furthermore, Algonquin also went through unexpected costs and delays in completing its renewable energy projects. This all added to its financial pressure, causing the company to slash its dividend and plan US$1 billion in asset sales.

Did it work?

That’s the big question, and it’s still a bit too soon to tell whether Algonquin has improved enough for investors. The company’s debt load has come down however, and this led to the stock raising its dividend again in the latter half of 2023.

As for the strengthening of its balance sheet, the company still has more room to improve. For the full-year of 2023, debt rose by 13% from US$7.5 billion to US$8.5 billion in 2023. Revenue also dropped by 2% year over year, with cash from operations falling by 6% during the fourth quarter, though rising 1% year over year.

This goes to show that the company still has a lot more work to improve its balance sheet. And until that happens, it’s unlikely that there is going to be more growth for Algonquin stock in the near future.

Is the dividend worth it?

Algonquin continues to look like a volatile company to invest in at these levels. Even with shares down so far in 2024. The company has seen its shares drop 28% in the last year alone. Yet it still remains quite pricey, trading at 205.3 times earnings as of writing!

While there continues to be some improvements in terms of its earnings per share (EPS) growth quarter over quarter, overall the company is still swimming in debt. Frankly, it was probably too early for the company to increase its dividend after the cut, and it should have used that money to improve its balance sheet instead of trying to attract back investors for the yield.

For now then, I would consider Algonquin stock not the best investment, though it remains one to watch. After cutting costs and improving its bottom line, top-line growth will assuredly come. And when that happens, today’s share price could look pretty valuable.

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