Over the past two-and-a-half years, investors have heard about various artificial intelligence (AI) investments that tech companies are making. Some of these are already starting to be used on a near-daily basis, while others may still take a few years to emerge.
But an often-overlooked question is: What happens if these AI efforts pay off? Some of these investments are only valued based on their current business, and don’t have any upside priced into them should their AI activities become a huge part of the investment thesis.
One of those companies is Meta Platforms (NASDAQ: META), the parent company of social media sites like Facebook and Instagram. I’d argue that the stock is being valued only on its legacy business, and it could take off once its AI investments begin to pay off.
Why do I think Meta is valued based on its current business? Well, when we look at its trailing price-to-earnings (P/E) ratio, it’s not all that different from where it has traded over the past seven-and-a-half years.
This tells me the market values it based on what it’s doing now, but some of the investments it’s making could transform the company.
One area that AI can assist with is efficiency. CEO Mark Zuckerberg has claimed that AI has become so advanced that sometime this year, AI will be able to code at the same capacity as a mid-level software engineer. While this may cause some people to lose their jobs, software engineer expenses are incredibly high for some companies like Meta. By replacing these workers with AI, Meta’s expenses will drop dramatically, significantly boosting profits.
Meta also believes that its AI investments will lead to an improved advertising experience. Zuckerberg commented that AI has already refined how Meta defines and targets audiences, but it’s also improving the ad creation side. This combination could boost Meta’s ad business and allow it to charge a premium on ads because it can promise a better outcome for its clients. As a result, Zuckerberg thinks ad-related revenue will become a much larger part of global GDP, and its platforms will be one of the biggest beneficiaries of that trend.
Another area Meta sees huge potential in is AI devices. Meta has chosen the path of integrating AI into glasses, and some models are already available through its collaboration with Ray-Ban. However, the devices that Meta is developing are far more advanced and will help people immerse themselves in AI throughout the day, which could have many productivity benefits (or drawbacks). Zuckerberg estimated that more than a billion people already wear glasses today, which is a massive market opportunity for Meta to capture should its AI glasses become a hit.
Meta Platforms, Mark Zuckerberg, AI applications, legacy business, investments
#Magnificent #Stock #Set #Skyrocket #Investments #Pay