Meta has emerged as a prominent player in artificial intelligence, transforming into not only a social media conglomerate but also a technology infrastructure provider. The company’s long-term strategy revolves around integrating AI into its social media operations and creating the foundation for more AI-driven websites and applications. To maintain its competitive edge over the long haul, Meta recognizes the need to compete with the likes of X and Chinese super apps by offering a comprehensive suite of social media and AI-ecosystem tools. Notably, Meta’s AI capabilities, including its Llama models, provide a significant competitive advantage. CEO Mark Zuckerberg’s financial acumen and technological expertise have guided Meta through a ‘Year of Efficiency,’ positioning the company for future success. While Musk and X pose rivalry in social media, AI, and internet ecosystems, Meta’s vast user base, with 3.19 billion monthly active users across its family of apps, remains a substantial competitive moat.
Meta’s valuation, however, raises concerns. In comparison to Tencent Holdings, the WeChat operator, Meta’s stock does not offer investors significant value for money. Tencent’s more attractive valuation and exposure to Chinese social media and AI development make it a compelling investment. The geopolitical rivalry between the United States and China adds another layer of complexity, with the potential for China to become the dominant world power. If this scenario unfolds, Tencent investors could reap significant long-term gains.
Despite the valuation concerns, Meta remains an exceptional company with proven executive management and a strong track record of capital allocation. The company’s ambitious plan to create artificial general intelligence and its investment in 600,000 AI GPUs for training its next-generation AI models demonstrate a commitment to high-risk, high-reward technology development. While the return on investment for Zuckerberg’s Reality Labs projects, including the Metaverse, remains uncertain, Meta has repeatedly shown its willingness to adapt and pivot based on market feedback. This adaptability suggests that even if the Metaverse underperforms, Meta will likely adjust its strategy to align with consumer demand.
Overall, Meta’s investment in AI positions it as a global leader with some of the most advanced AI capabilities. The company’s vast user base and financial strength provide a foundation for long-term growth. While the valuation remains a concern, Tencent Holdings offers a more compelling investment opportunity due to its attractive valuation and exposure to the potentially dominant Chinese world economy. Nonetheless, Meta’s strong AI capabilities and adaptability make it a Buy recommendation, with shareholders expected to benefit from continued growth and dividend payments.
