The fortunes of the “Magnificent 7” have diverged this year, and three constituents, namely Alphabet (GOOG), Apple (AAPL), and Tesla (TSLA), are in the red, with the Elon Musk-run company losing nearly a quarter of its market capitalization. Amazon (AMZN) shares are barely in the green while Microsoft (MSFT) and Nvidia (NVDA) are up in the mid-teens.
With YTD gains of nearly 23%, Meta Platforms (META) is the best-performing constituent of the group, all of whose members are artificial intelligence (AI) plays in their own right. Earlier this year, I noted that Meta looks like the best AI play among the group. In this article, we’ll analyze whether the Mark Zuckerberg-led company still earns that title.
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During the March quarter earnings call, while other major tech companies either maintained their AI capex guidance or else guided for spending to taper down in the future, Meta raised its 2025 capex guidance to between $64 billion and $72 billion compared to the previous guidance of $60 billion to $65 billion, citing higher investments in data centers. “We continue to increase our investments and focus more of our resources on AI,” said Zuckerberg during the earnings call.
Meta has become even more ambitious and last month acquired a 49% stake in Scale AI, hiring its founder, Alexandr Wang, along with other key employees in the process.
Notably, acquisitions have been a key growth pillar for Meta, and it previously acquired Instagram and WhatsApp, which helped it become the social media behemoth that it is today. Meta seems to be taking the same approach to AI, and where it cannot acquire a company, it has poached talent.
Zuckerberg has been on an AI talent hiring spree and has hired former GitHub CEO Nat Friedman, who along with Wang, heads the company’s Superintelligence Labs. Additionally, Meta has hired several AI executives from Google, OpenAI, and Anthropic.
In an internal memo, Zuckerberg said that while he is “excited” about the planned progress on the company’s Llama 4.1 and 4.2 models, he added, “In parallel, we’re going to start research on our next generation of models to get to the frontier in the next year or so.”
Zuckerberg said that Meta is “uniquely positioned to deliver superintelligence to the world” and highlighted the progress in wearables and AI glasses. Hardware could be the next frontier for AI, and OpenAI paid a cool $6.5 billion to acquire Jony Ive’s startup, io Products. Ive was a former chief design officer at Apple, where he helped design the iPhone.
Meta is making incremental progress in AI and is adding more AI features to its WhatsApp business suite. Large businesses will now be able to use AI-powered voice agents to reach their customers. Moreover, WhatsApp, which will now officially show ads to users, will also use AI for product recommendations on merchant sites.
Notably, during its Q1 earnings call, Meta said that its AI digital assistant monthly user count is now almost 1 billion. According to Zuckerberg, AI will lead to better user engagement and “improved advertising.” He listed business messaging and Meta AI as the other growth drivers. While currently Meta does not charge for AI features, we can be reasonably assured that it will start doing so in the future.
After the recent rally, Meta now trades very close to its mean target price of $722.96, even as it still has a consensus rating of “Strong Buy” from the 54 analysts actively covering the stock.
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The overall Meta story looks bullish to me, even as the forward price-earnings (P/E) ratio looks a bit elevated at 29x, which is not only higher than what the stock has historically traded at but also a premium to the broader market. However, Meta has seen a re-rating as markets give a thumbs up to its AI strategy. Moreover, the multiples will taper down as AI initiatives start adding to Meta’s profit pool and its metaverse losses narrow in the coming quarters.
I continue to believe that Meta is among the best, if not the best, AI plays out there. The next big story for the company could be AI glasses, and while these haven’t flown off the shelf yet, many believe that glasses could be the next prominent computing platform after smartphones.
Overall, I will hold my shares even at these valuations as Meta reestablishes itself as a prominent AI stock.
On the date of publication, Mohit Oberoi had a position in: META, AAPL, GOOG, MSFT, NVDA, AMZN, TSLA. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
