The artificial intelligence (AI) space is red hot right now. Companies in every industry want to take advantage of technology, and are investing heavily to gain an edge over the competition. This is true in the social media space, where advertisers are eager to get in front of the right audience for them.
While the social media landscape is full of competition, one company is setting itself apart from the pack. Meta platforms (NASDAQ: META ) AI is making strides in various aspects of the realm, and the competition shows.
Let’s explore why investing in Meta now is a profitable opportunity as the long-term AI narrative unfolds.
The profit machine is up and running.
One of the most fascinating aspects of Metta is how effectively the management runs the business. In 2023, Meta’s revenue grew 16% year-over-year to $135 billion. However, the company reported a 62% year-over-year increase in revenue from operations to $46.7 billion.
By expanding its operating margin, Meta also recognized significant growth on the bottom line. Last year, the company generated $43 billion in free cash flow. With such a strong financial profile, Meta is well positioned to invest profits in 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 pile. For starters, it has added $50 billion to its share repurchase program. This is encouraging to see because it could mean that management sees the meta stock as a good value.
But perhaps more interesting was the quarterly dividend announcement. Many high-growth tech companies are not in a financial position to pay dividends — or choose instead 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 uses your cash flow is in the realm of artificial intelligence. Like many enterprises, Meta relies heavily on state-of-the-art graphics processing units (GPUs). Nvidia. However, Meta has been hinting for a while that the company is investing in its 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 few reasons. That means the in-house chips will allow Meta to “control the entire stack” and reduce its reliance on third-party semiconductors. Additionally, given the company’s knowledge base of data it collects from social media platforms Facebook, Instagram and WhatsApp, these new chips position Meta to target its targets through the power of generative AI. Optimized recommendation models and ad campaigns.
A great assessment
Meta competes with multiple players in the social media landscape. the alphabet One of the company’s top competitors is because it operates two of the world’s most visited websites: YouTube and Google. However, in 2023 Alphabet only grew its core advertising business by 6% year over year. In contrast, Meta’s advertising segment grew by 16 percent.
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 a premium.
Additionally, considering Meta’s price-to-free cash flow ratio of about 31 is actually trading in line with its 10-year average of 32, the stock may not be as expensive as it appears.
Overall, I’m optimistic about Meta’s aggressive ambitions in artificial intelligence — an investment that has yet to pan out. The AI narrative is going to be a long-term story. But I see the meta-secular as very well equipped to take advantage of the themes that fuel AI, and leverage it throughout its business.
The combination of dividends, share buybacks, consistent cash flow, and a strong AI play establish the meta in a highly competitive AI landscape. I think now is a great opportunity to get a stake in the meta and be prepared for the long term.
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatico has positions at Alphabet, MetaPlatforms and Nvidia. The Motley Fool has positions and recommends Alphabet, MetaPlatforms, Nvidia, and Pinterest. The Motley Fool has a Disclosure Policy.
A Generational Investment Opportunity: 1 Sizzling Artificial Intelligence (AI) Stock to Buy Handover Fist in April was originally published by The Motley Fool.