Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) and Meta Platforms (NASDAQ:META) are moving at full speed when it comes to the artificial intelligence (AI) race, one that may have no clear winner until many years down the road. Nevertheless, both Magnificent Seven stocks have some of the most exciting and aggressive AI plans out there today, and they’re rated as Strong Buys on Wall Street — rightfully so.
Though the firms come from different corners of the technology sector, with Alphabet primarily coming from search and cloud services while Meta comes from social media and the Metaverse, both tech giants are bound to clash as they go all out on AI spending.
After the initial GPU arms race and large language model (LLM) launches, both companies could start getting serious about turning the profit dial to the max as they use disruptive and controversial technology to break into new industries.
For the time being, Google, Meta, and just about every other high-tech firm with a horse in the AI race will be playing from a very similar playbook as they aim to spare no expense with AI. I remain bullish on both companies for the next five years while these tech juggernauts are going for less than 25 times forward price-to-earnings (P/E).
Google, Meta Are AI Leaders, But Staying Ahead Will Get Expensive
Whether we’re talking about acquiring as many Nvidia (NASDAQ:NVDA) Blackwell AI accelerator chips as possible or the hefty expenditures that’ll come with developing next-generation AI applications, Google and Meta know what’s on the line and the potential risks of not opening up the pocketbook soon enough in this so-called AI boom.
Thus far, they’ve seemed to be going all-in on the technology’s development, with Meta committing to invest $35-40 billion (up from the original $30-37 billion) on AI for 2024 and Google pouring over $12 billion per quarter. That’s some serious cash to stay in the front of the pack while the biggest monetization opportunities remain somewhat hazy in these early days.
Either way, Meta seems to already be scoring decent returns for prior AI bets, with its AI-focused Advantage+ advertiser tools already achieving a $10 billion annual run rate as of February. Moreover, there are other AI profit drivers that are more difficult to quantify — most notably, AI-powered user engagement with content across Meta’s social media family of apps.
About 30% of content served to users on Facebook (and 50% on Instagram) was recommended by AI. Undoubtedly, Reels, Meta’s answer to TikTok, is a major platform where AI recommendations could play a growing role.
As for Google, it’s less clear how AI can “net” the company revenue, as it’s likely that Google searchers could migrate to Gemini or other LLMs over time.
In any case, I’d argue that Meta has more than enough early signs of success to justify jacking up the AI spending. Perhaps $40 billion may just be the start, even if investors would rather see Zuckerberg pull back a bit to jolt the stock a bit in the nearer term. I don’t think he will, given that he seems to be thinking many, many years into the future, whether it be the Metaverse or the future state of AI.
The AI Plan for the Two Most “Magnificent” Companies
As a part of Meta’s capital expenditure plan, it hopes to invest heavily in data centers, its own AI chip designs (anything to lower the dependence on Nvidia), and its Llama LLM, among other investments. Google is following a similar game plan, with much of its R&D going into its impressive LLM (Google Gemini) and other AI features that stand to enrich the Google Search experience as we know it.
With Llama and its consumer-facing Meta AI, it’s unclear whether it’ll take the paid subscription route like Google Gemini. Perhaps Meta could keep things free as it looks to specialize its model and add value to specific industries.
Hollywood stands out as one scene that Google and Meta could make a big splash in. Reportedly, the two tech juggernauts are exploring the possibility of hitting a licensing deal for AI-generated video to potentially hit it big in Hollywood. Meta’s Emu video-generation model is going against Google’s Veo and OpenAI’s Sora. Whether waving around millions will be enough to get major studios to embrace the technology, though, remains to be seen. Thus far, there have been a lot of rejections from major studios. Maybe that’s a good thing.
A “no” today doesn’t mean a “no” forever, though. As such models become more capable, it may be tough to stop AI from changing Hollywood forever. Beyond Hollywood, Google also seems to be setting its sights on the field of journalism, with AI tools recently unveiled to help augment journalists. Though technology may one day take jobs from journalists in the distant future, I can’t say I’m worried just yet.
Is META Stock a Buy, According to Analysts?
META stock is a Strong Buy, according to analysts, with 37 Buys, three Holds, and two Sells assigned in the past three months. The average META stock price target of $522.95 implies 12% upside potential.
Is GOOGL Stock a Buy, According to Analysts?
GOOGL stock is a Strong Buy, according to analysts, with 32 Buys and five Holds assigned in the past three months. The average GOOGL stock price target of $197.53 implies 14.8% upside potential.
The Bottom Line
As Meta, Google, and the rest of big tech gravitate from rampant spending, they focus on enhancing algorithms working behind the scenes to increase the value of existing services, most notably ads. They are also embedding AI “copilots” into just about every internal and consumer-facing product available. Perhaps things could get more interesting as big tech narrows its sights on specific industries, like Hollywood and journalism, that AI could disrupt.
Whether AI disrupts these new markets for the better or worse is up for debate. Either way, big tech has a lot to gain as it tailors its powerful AI models to automate and augment. The hope is that AI will augment and improve humans’ creative potential while taking care of repetitive tasks rather than replace them entirely in an effort to cut corporate costs down to the bone.
