Artificial intelligence (AI) has penetrated almost every industry in the past 18 months since the launch of OpenAI’s ChatGPT.
There have been several big winners in the AI arms race. Nvidia is selling its powerful graphics processing units (GPUs) faster than it can make them, leading to huge profits for the chipmaker. Microsoftan investor in OpenAI, has seen revenues from its cloud platform increase due to demand for computing power and access to AI models.
But one company has been working on advanced AI algorithms for more than fifteen years and has been publishing research in this area for the past decade. It has made some important advances in generative AI and large language models, and its CEO believes it can become “the world’s leading AI company.”
This isn’t an obscure tech company. You probably use one of the products every day, along with more than 3 billion other people. I’m talking about Metaplatforms (NASDAQ: META)the company behind Facebook, Instagram, WhatsApp, Messenger and the major language model Llama 3.
Meta uses its AI in all its products
Meta has been working on AI algorithms for over a decade and a half. It developed a new machine learning algorithm in the early 2010s to recommend content in users’ feeds. AI then powered its advertising efforts, ensuring the right users saw the right ad at the right time.
Meta has developed AI that can understand the things people type on Facebook or Instagram (natural language processing) and the photos users post (computer vision). That helps the company understand the content it shows to other users and makes it easier to block hate speech and other violence on its platforms.
Meta is also working on generative AI. The major language model, Llama, is now in its third version, which is open source. Llama 3 has proven to be more cost-effective for developers to use than OpenAI’s models, but often falls short of the capabilities of OpenAI’s latest GPT-4o model.
Meta integrated its generative AI capabilities into its advertising platform, making it easier for marketers to create and test ad campaigns. CEO Mark Zuckerberg says revenue from its AI advertising tools has doubled since last year.
The Llama 3 model also supports Meta AI, the new AI assistant built into Meta’s family of apps. Management reported “tens of millions” of users within a week of its April launch.
Meta also uses generative AI to help creators communicate with fans, to help companies connect with customers, and for the internal development team.
Building the world’s leading AI models won’t be cheap
Training a large language model to generate accurate and creative answers to questions, help build winning ad campaigns, or generate realistic photos from a text description takes a lot of computing power. That means you have to spend a lot on new GPUs, build new data centers, and pay for all the electricity to run them.
Zuckerberg is not shying away from the high costs associated with his ambition to become the world’s leading AI company. “We need to invest significantly more in the coming years to build even more advanced models and the world’s largest AI services,” he said during Meta’s first-quarter earnings call.
Meta raised its outlook for this year’s capital expenditures from between $30 billion and $37 billion to between $35 billion and $40 billion, in addition to announcing first-quarter results.
Zuckerberg also thinks it will take some time for Meta to generate meaningful revenue from its AI efforts. While Meta will integrate its advances in AI into its various products, it will include direct monetization, such as advanced business messaging, advertising, and paid content within AI interactions, and charging a fee for access to premium AI models (like OpenAI does) do not become reality. years. But he said: “If the technology and products evolve in the way we hope, each of these will unlock enormous amounts of value for people and… [businesses] for us over time.”
The best AI stock to buy now
Meta remains one of the most attractive AI stocks on the market.
While investors initially sent the stock price lower on news that Meta plans to spend billions more than originally planned on building AI data centers, the stock has since recovered. It is now trading near its all-time high, but it could climb even higher.
Its forward price-to-earnings ratio of 25.5 gives it a slight premium over the S&P500. But analysts expect Meta’s earnings per share to grow about 30% per year over the next five years. This growth is supported by a large-scale share buyback program. Meta had about $58 billion in cash on its balance sheet at the end of the first quarter and could generate another $50 billion in free cash flow this year despite the increase in capital expenditures.
Meta’s ambitions in artificial intelligence could spark a new period of strong growth for the tech company. At the current share price, it seems fair value. And if it builds a big business around its AI models, that could yield significant benefits for investors.
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Meta Platforms and Microsoft. The Motley Fool holds positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
1 stock to buy with ambitions to become the world’s leading artificial intelligence (AI) company was originally published by The Motley Fool
