Artificial intelligence (AI) has permeated almost every industry in the past 18 months since the launch of OpenAI’s ChatGPT.
There have been several big winners in the AI arms race. Nvidia is selling its powerful graphics processing units (GPUs) faster than it can manufacture them, generating huge profits for the chipmaker. Microsoftan investor in OpenAI, has seen revenue from its cloud platform increase due to demand for computing power and access to AI models.
But one company has been working on advanced AI algorithms for more than 15 years and publishing research in the field for 10 years. It has made several major advances in generative AI and large language models, and its CEO believes it can become “the world’s leading AI company.”
This is not some obscure technology company. You probably use one of its products every day, along with over 3 billion other people. I’m talking about Metaplatforms (NASDAQ:META)the company behind Facebook, Instagram, WhatsApp, Messenger and the great language model Llama 3.
Meta uses its AI in all its products
Meta has been working on AI algorithms for over a decade and a half. She developed a new machine learning algorithm in the early 2010s to recommend content in user feeds. AI then powered its advertising business, ensuring the right users saw the right ad at the right time.
Meta has developed AI that can understand what people type on Facebook or Instagram (natural language processing) and what photos users post (computer vision). This helps it understand the content it shows to other users and makes it easier to block hate speech and other violence on its platforms.
Meta also works on generative AI. Its large language model, Llama, is now in its third version, which is open source. Llama 3 has proven to be more cost-effective for developers than OpenAI’s models, but it often falls short of the capabilities of OpenAI’s latest GPT-4o model.
Meta has integrated its generative AI capabilities into its advertising platform, making it easier for marketers to create and test advertising campaigns. CEO Mark Zuckerberg says revenue from its AI-powered advertising tools has doubled since last year.
The Llama 3 model also powers Meta AI, the new AI assistant built into the Meta family of apps. Management reported “tens of millions” of users in the week following its April launch.
Meta also uses generative AI to help creators engage with fans, to help businesses connect with customers, and for its internal development team.
Building the world’s best AI models won’t be cheap
If you want to train a large language model to be able to come up with accurate and creative answers to questions, help create winning advertising campaigns, or generate realistic photos from a text description, it requires a lot of computing power. That means spending a lot of money on new GPUs, building new data centers, and paying for all the electricity needed to run them.
Zuckerberg is not shying away from the high costs associated with his ambition to become the world’s leading AI company. “We should invest much more in the coming years to build even more advanced models and AI services on a larger scale in the world,” he said during the first quarter earnings conference call by Meta.
Meta increased its capital spending forecast for this year from $30 billion to $37 billion to between $35 billion and $40 billion in conjunction with the release of its first-quarter results.
Zuckerberg also believes it will take some time for Meta to generate significant revenue from its AI efforts. Although Meta will integrate its AI advancements into its various products, direct monetization such as advanced business messaging services, advertisements and paid content in AI interactions, as well as charging fees for Access to premium AI models (like OpenAI does) won’t materialize for years. But he added: “If technology and products evolve as we hope, each of them will unlock enormous amounts of value for people and… (businesses) for us over time.”
The Best AI Stocks to Buy Right Now
Meta remains one of the most attractive AI stocks on the market.
While investors initially drove down the stock price following the news that Meta planned to spend billions more than initially planned to build AI data centers, the stock has since fallen. straightened. It is now trading near its all-time high, but it could still climb higher.
Its forward price/earnings ratio of 25.5 gives it a slight premium compared to S&P500. But analysts expect Meta’s earnings per share to grow about 30% annually over the next five years. This growth is supported by a massive share buyback program. Meta had about $58 billion in cash on its balance sheet at the end of the first quarter and could generate an additional $50 billion in free cash flow this year despite increased capital spending.
Meta’s ambitions in the field of artificial intelligence could propel a new period of strong growth for the technology company. At the current stock price, this appears to be a fair value. And if it builds a large company around its AI models, that could offer significant benefits to investors.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Levy holds positions at Meta Platforms and Microsoft. The Motley Fool holds positions and recommends meta-platforms, Microsoft and Nvidia. 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 disclosure policy.
1 Stock to Buy with Ambitions to Become the World’s Leading Artificial Intelligence (AI) Company was originally published by The Motley Fool