Evaluating the Magnificent Seven: Meta Platforms vs. Alphabet for 2025

Technology stocks have seen substantial growth this year, significantly contributing to the S&P 500's impressive 27% rise. A select group of companies, known as the "Magnificent Seven," has driven this trend. This term references the classic 1960 Western film and highlights the major players in the tech sector that have displayed a consistent ability to grow their earnings.

Some of the most recognized names included in this elite group are:

• Meta Platforms (META) - the parent company of well-known social media platforms like Facebook.
• Alphabet (GOOG, GOOGL) - the umbrella company for Google and YouTube.
• Amazon - the leader in e-commerce and cloud services.
• Apple - famous for its iPhone and related products.
• Microsoft - a powerhouse in software and cloud solutions.
• Nvidia - recognized for its dominance in the AI chip market.
• Tesla - the frontrunner in electric vehicles.

This year, the performance of these stocks has varied, with gains ranging from a 19% increase for Microsoft to a remarkable 171% surge for Nvidia. While these gains are beneficial for current shareholders, they have also inflated the valuations of these companies.

Nonetheless, two companies from the Magnificent Seven remain attractively priced. Meta Platforms and Alphabet are both focusing on the rapidly growing field of artificial intelligence (AI), with forward price-to-earnings ratios of 27 and 24, respectively. This raises the question: which of these two stocks is a better investment for 2025?

Why Choose Meta Platforms?

Meta Platforms manages some of the world's most popular social media apps, such as Facebook, Messenger, WhatsApp, and Instagram. Each day, over 3.2 billion users engage with at least one of its platforms. This vast user base allows Meta to generate billions through digital advertising. Recently, the company reported a 19% year-over-year increase in advertising revenue, surpassing $39 billion.

In addition, Meta is making significant investments in AI, having developed the large language model named Llama and made it open source. By allowing developers easy access to this technology, Meta is positioning itself to become a leader in the AI domain.

The company's AI initiatives could drive substantial growth, as Meta aims to introduce AI assistants and tools that enhance user experience across various needs—both personal and business-related. However, the leadership has indicated that the results of these investments may take time to materialize, requiring patience from investors.

Why Choose Alphabet?

On the other hand, Alphabet is both a user of and a provider of AI technology. The company developed the Gemini large language model and is leveraging this technology to enhance Google Search, which already commands a global market share of approximately 90%. Improvements driven by AI, such as the AI Overview feature in Google Search, have led to increased user engagement. Alphabet reported a 10% rise in its third-quarter advertising revenue, exceeding $65 billion.

Moreover, Alphabet is expanding its AI capability through its growing Google Cloud business. In the second quarter, Google Cloud generated over $10 billion in revenue and more than $1 billion in operating income, with further growth reported in the third quarter. Through Google Cloud, clients can access a range of AI-related services, from computing capabilities to a fully managed platform for AI development known as Vertex AI. This upward trend in cloud revenue demonstrates the positive impact of Alphabet's investment in AI.

Making the Choice

Before concluding my recommendation, it is important to note that Alphabet is currently addressing antitrust issues, with the Justice Department seeking potential break-up measures against the company. Although this situation poses risks, it appears that Alphabet is prepared to contest any unfavorable rulings. Despite these challenges, I believe these antitrust concerns should not deter potential investors.

Ultimately, when comparing the two, I would personally lean towards investing in Alphabet. Its growing momentum in the Google Cloud sector, combined with a reasonable stock valuation, makes it an appealing option. The developments in the AI space are still in their nascent stages, indicating that Alphabet's growth prospects could remain robust as demand for cloud-based AI solutions escalates in the coming years.

technology, stocks, AI, investment