One of the biggest global developments in recent years is artificial intelligence (AI). While AI has been around in one form or another for decades, more recent developments have turned the tech world upside down.
Evidence is plentiful. The four largest companies in the world – as measured by market capitalization – all share a common thread: they are all embracing the groundswell around generative AI and racing to capitalize on these advanced algorithms. At the top of that list Microsoft, the only company with a market capitalization over $3 trillion. Being followed closely Apple, NvidiaAnd Alphabetwith market capitalizations between $2.9 trillion and $2.1 trillion.
One company that seems destined to join the $2 trillion club is Metaplatforms (NASDAQ: META). The social media titan has a wealth of data on its users and uses its data cache for profit.
Let’s take a look at Meta’s place in the overall AI ecosystem and the factors that could propel the stock to unprecedented heights, making it part of this prestigious group.
Data is the new oil
In 2006, British mathematician Clive Humby famously said ‘data is the new oil’. In other words, data in its raw form must be refined to realize its greatest potential. Recent developments in generative AI have given new meaning to this oft-quoted phrase.
AI models are trained on large amounts of data, allowing them to make more accurate predictions and improve their decision-making process. Therefore, companies with the most data can create the most effective AI systems.
That’s what gives Meta Platforms an edge in the AI revolution. The company has a large number of social media platforms, including three of the four largest social media platforms in the world (as measured by monthly users), including Facebook, Instagram and WhatsApp, among others. In the first quarter, more than 3.2 billion people logged in to one of the company’s apps. This gives the company access to a virtual treasure trove of data about its users, which is the main fuel for training AI models.
The fruit of these efforts is LLaMA (Large Language Model Meta AI), which underpins the company’s flagship Meta AI. Last month, the company unveiled LLaMA 3, making Meta AI “one of the world’s leading AI assistants.” This AI is free to users (resulting in more data), although Meta charges major cloud infrastructure providers a fee to include it in their offerings.
The generative AI capability
As the world’s largest social media provider, it may seem counterintuitive that Meta Platforms would be interested in AI, but it still seems like too good an opportunity to pass up. By simply repurposing the data it already has, Meta can generate an entirely new revenue stream, enriching shareholders along the way.
Estimates about the extent of AI capabilities are all over the map, so there is no definitive figure. However, one of the more conservative estimates suggests that generative AI will be a $1.3 trillion market by 2032, according to data compiled by Bloomberg Intelligence. With an opportunity of that magnitude, it’s easy to see why Meta went this route.
A track record of robust growth
Over the past decade, Meta’s revenue has grown by 3,120% (at the time of writing), while net income has increased by 4,000%. While this hasn’t happened in a straight line, the company’s performance has been consistent, leading to dramatic growth in its share price, which is up 1,140%. These results are made possible by Meta’s digital advertising, which generates the lion’s share of revenue.
In the first quarter, Meta’s growth was impressive. Revenue of $36.5 billion rose 27% year over year, while diluted earnings per share of $4.71 rose 114%. The number of visitors to the platforms grew by 7%, increasing the number of ad impressions, which increased by 20%, while the average price per ad increased by 6%. Driving the robust earnings growth was a slower increase in costs and expenses, which grew only 6%.
Meta has developed a host of generative AI features to help advertisers better reach their target audience. For example, users can create multiple backgrounds, adjust the size of the main image and create variations on the original text, saving advertisers time and money. That, combined with the continued recovery in the advertising market, means good news for Meta.
While there is a lot of focus on AI, there are other potential growth drivers that could push Meta higher. Meta’s Reality Labs, which includes the company’s Quest virtual reality (VR) headsets and Metaverse ambitions, have put the brakes on Meta’s results thus far. However, CEO Mark Zuckerberg believes that continued investments in Reality Labs will ultimately boost Meta’s bottom line, although that remains to be seen.
The road to $2 trillion
Meta currently has a market cap of roughly $1.22 trillion, meaning it would only need a share price gain of about 65% to take its value to $2 trillion. According to Wall Street, Meta is expected to generate revenues of $146.2 billion in 2024, giving it a price-to-sales ratio (P/S) of around 8. Assuming the P/S remains constant, Meta should expand its business. sales to approximately $241 billion per year to support a market cap of $2 trillion.
Wall Street currently predicts revenue growth of 28% per year for Meta over the next five years. If the company hits that benchmark, then it is could be reaching a market capitalization of $2 trillion as early as 2027. It’s worth noting that Meta has a history of outperforming analyst expectations. If so, it could cross that line sooner.
It’s worth noting that the economy is still a wild card, and sentiment is still driven by inflation and the possibility of rate cuts. If macroeconomic conditions remain subdued or even turn south, advertising revenues could take a hit, and Meta could suffer.
That said, 27 times earnings is comparable to the price-to-earnings ratio of the S&P500 and a relative bargain given Meta’s track record of growth.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. 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. Danny Vena has positions at Alphabet, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Apple, 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.
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