A Promising AI Stock for 2025: Meta Platforms

Investing in artificial intelligence (AI) stocks has become more dynamic recently, especially following news from DeepSeek about their R1 model, which was trained for only $5.6 million. However, that amount does not factor in hardware expenses or any prior training conducted. This revelation has raised questions among investors about why competitors in the U.S. are allotting billions for their AI models.

Despite DeepSeek's achievements in efficiency, the capabilities of AI models developed by companies like Meta Platforms are still noteworthy. While there are some concerns prompted by DeepSeek's announcement, I believe Meta is well-positioned for success in 2025 and is poised to outperform the market.

Meta's Ongoing Investment in AI

Many know Meta Platforms by its former name, Facebook. The company oversees several popular social media applications, including Instagram, Threads, Messenger, and WhatsApp. This suite of services is still the primary source of revenue for Meta, contributing about $46.8 billion of its $48.4 billion in revenue from advertising in the last quarter.

The substantial profits from this core business allow Meta to invest in its various AI initiatives. Essentially, it's using profit from established segments to fund AI development. This is a crucial point for potential investors: Meta does not need to dominate the AI race to remain a valuable investment. In fact, if Meta chose to withdraw from the AI competition and redirected its planned capital expenditures of $60 billion to $65 billion for 2025, it could still see remarkable earnings growth.

Nevertheless, continued investment in AI makes sense for Meta, as the breakthroughs are significant. In the coming years, CEO Mark Zuckerberg envisions the possibility of developing an engineering AI agent capable of coding and problem-solving like a proficient mid-level engineer. This advancement has the potential to create significant cost savings for businesses that create software.

Zuckerberg also noted that while it is premature to determine if DeepSeek's efficiency breakthrough affects Meta's spending on AI servers, the company serves an AI audience that is substantially larger than that of DeepSeek. Meta aims to incorporate the efficiency advancements discovered by DeepSeek into its operations.

Even with the concerns from DeepSeek's announcement, the fundamental investment thesis for Meta remains strong. The pressing question now is whether the stock is still fairly valued.

The Attractive Valuation of Meta's Stock

Initially, Meta’s stock price suffered a dip after the DeepSeek announcement; however, it has since bounced back to reach an all-time high, fueled by strong fourth-quarter earnings. With revenue increasing by 21% year-over-year and earnings per share (EPS) surging by 50%, Meta stands out as one of the top performers in the tech sector.

Moreover, the stock's current pricing appears reasonable, sitting at 32 times trailing earnings and 27 times forward earnings. In comparison to other major tech players such as Apple and Microsoft, which have similar forward earnings ratios, Meta offers a compelling balance of growth potential and reasonable pricing. While Meta has not issued full-year guidance for 2025, analysts predict an average revenue growth rate of 14% for the company, which is impressive considering its size and that much of the growth isn't directly attributed to AI.

If Meta can develop a groundbreaking AI product that consumers are willing to pay for, it could create a significant new revenue stream. This blend of a stable core business with a potential for extraordinary growth makes Meta an excellent choice in the AI investment space.

As competition in the AI field intensifies, Meta continues to achieve innovative breakthroughs, solidifying its position as a top AI investment.

AI, Investing, Stocks