Morgan Stanley estimates that only four companies — Microsoft, Amazon, Alphabetsagain Meta Platforms(NASDAQ: META) — will spend a combined $300 billion on data center infrastructure and chips by 2025 alone, to support their ambitions in the artificial intelligence (AI) space.
Cathie Wood is the founder of Ark Investment Management, which operates several exchange-traded funds (ETFs) focused on technology stocks. He believes that software companies will be the next big opportunity in AI, predicting that they can generate $8 in revenue for every $1 they invest in chips from the same suppliers. Nvidia.
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Those four tech giants could reap incredible profits from AI infrastructure deployments if they're right, but that's why investors may regret not buying Meta Platforms stock, especially, in 2025.
Image source: Getty Images.
Meta is the parent company of social networks Facebook, Instagram, WhatsApp, and Messenger. Together, those apps help nearly 3.3 billion people around the world every day, and AI plays a key role in shaping their experience.
Meta is building an AI-powered content recommendation engine that learns what each user likes to see, and uses that information to tailor their Facebook and Instagram feeds. CEO Mark Zuckerberg says this strategy has led to an 8% increase in the time users spend on Facebook this year, and a 6% increase on Instagram. That means each user sees more ads, which translates into more revenue for Meta.
Meta is also introducing new AI-powered features such as Meta AI, a virtual assistant accessible through its apps. It can generate images and text, and join group discussions to resolve disputes or provide recommendations for fun activities. The quality of the AI assistant depends on the large language model (LLM) it is built on, and since Meta has a large collection of data from millions of posts on its social networks, it has been able to create an advanced family of LLMs called. Llama.
The most popular LLMs (such as those developed by OpenAI and Anthropic) are closed source, while Llama is open source. That means millions of developers are often digging into the code, which helps Meta quickly identify bugs and improve its performance.
Llama 3.2 is the latest version of Meta's flagship LLM, but Zuckerberg says the company is on track to launch Llama 4 in 2025. It is developing so fast that you believe it will be the most advanced in the entire industry. That would be an impressive achievement, considering startups like OpenAI were just a few years earlier.
Meta generated a record $40.6 billion in total revenue during the most recent third quarter of 2024 (ended September 30). Most of that revenue comes from selling advertising space to businesses, and the company has an impressive track record of introducing new features and making money that way.
Meta originally placed ads in content feeds to grab users' attention while scrolling through posts from friends and family members. But video content formats such as Story and Reels have contributed significantly to the company's revenue, although rival platforms such as SnapSnapchat and TikTok started marketing with similar features.
Meta AI already has more than 500 million active users, and although it's free to use, the company says there will be opportunities to make money in the future. Personally, I think advertisers will pay money to link their websites or products within Meta AI's answers if a user asks a relevant question.
But Meta AI also paves the way for new features like Business AI. Zuckerberg believes that every business that uses Meta applications will eventually have its own AI-powered virtual agent, which can handle incoming inquiries from customers, and possibly even perform sales. Businesses can customize their agents to suit their needs by training them on their product range, or by teaching them to respond to customers in a way that suits their product.
Meta will likely charge for a tool like Business AI, possibly on a per-message basis or even on a subscription basis, which could open up entirely new revenue streams.
Meta stock is up 532% from its 2022 low around $90. However, based on trailing 12-month earnings per share (EPS) of $21.23, it trades at a price-to-earnings (P/E) ratio of just 27.2, which is average. still cheap ones.
It's 15% off on Nasdaq 100which trades at a P/E ratio of 32.2. And it makes Meta cheaper than all other AI stocks valued at $1 trillion or more, except for Alphabet, which is currently fighting several regulatory battles against the US government:
PE Ratio data by YCharts
Meta stock looks cheap going forward. The Wall Street consensus estimate (according to Yahoo!) suggests that the company will generate $25.33 in EPS in 2025, putting its stock at a P/E ratio of 22.7. In other words, Meta stock would have to rise 42% over the next year just to trade in line with the Nasdaq 100's P/E ratio.
Llama will be the key to Meta's success in the AI race from here on out, because as mentioned, quality AI software starts with a quality LLM — but developing LLMs is not cheap. It took about 16,000 of Nvidia's H100 graphics processors (GPUs) to train Llama 3, but Llama 4 will need more than 100,000.
That's why Meta is on track to spend up to $40 billion on AI infrastructure by 2024, and plans to spend even more in 2025. In fact, Morgan Stanley he thinks the company could spend as much as $52 billion next year.
If Wood is right, Meta could end up reaping hundreds of billions of dollars in revenue from those AI uses, which would translate into incredible returns for investors. Given the attractive valuation, Meta stock may be the best choice of AI giants to buy next year.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, CEO of Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of marketing and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platform, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a policy of disclosure.
Cathie Wood Says Software Is The Next Big AI Opportunity — The 1 Super Stock You'll Regret Not Buying In 2025 If She's Right was originally published by The Motley Fool
