Artificial intelligence (AI) is increasingly becoming an inevitable part of our daily lives. While businesses are adopting AI in areas such as operations, customer service, and analytics, customers are also using AI-based services for payments, e-commerce, and online education.
With AI emerging as the next big trend in the coming decade, investors stand to benefit by capitalizing on this theme. Here's why Meta Platforms (META 0.16%) and Symbotic (SYM -6.62%) can prove to be attractive AI-focused companies in the long run.
Meta Platforms
After a turbulent 2022, share prices of Meta Platforms rebounded significantly in 2023, with a remarkable 166% jump so far. CEO Mark Zuckerberg's focus on cost optimization seems to have paid off, and the company is back on a path to growing revenue and earnings. The company ended the second quarter with $32 billion in revenue and a solid 29% operating margin.
Meta, which owns and operates some of the most popular social media platforms such as Facebook, Instagram, WhatsApp, and Messenger, currently holds the second position in the global digital advertising market with a projected revenue share of 18% in 2023. In June, the company boasted 3.07 billion daily active users. The massive user base has been pivotal in Meta's success in the digital advertising space -- allowing it to rapidly displace competition and enjoy substantial ad-pricing power.
Meta also incorporated AI in its core offerings to improve content discovery, user engagement, ad targeting, monetization, and overall consumer service. Since the company started using AI to recommend content from unrelated accounts on Facebook, time spent on the platform has increased by nearly 7%. The conglomerate is also using an AI-focused content discovery engine to drive up monetization of the short-form video platform, Reels. These initiatives seem to be paying off, especially since Reels has reached 200 billion daily plays across platforms and had an annual run rate of over $10 billion at the end of the second quarter.
Meta also developed a range of AI products -- Meta Advantage for improving ad performance, Meta Lattice for predicting ad performance, and AI Sandbox to test a range of generative AI tools -- all geared toward businesses. The company also plans to use AI for building the metaverse, (an initiative that has proved to be a big cash burn so far) -- as is evident from its focus on patents related to augmented reality (AR), virtual reality (VR), and extended reality (XR).
Meta is now working actively to monetize 200 million users on WhatsApp Business by enabling them to advertise on Facebook and Instagram, even without a Facebook account. While WhatsApp's paid messaging products are in the early stage of adoption, they still show a lot of promise.
In this context, considering Meta's dominant position in the global digital advertising market, significant pricing power, AI advancements, and upcoming revenue streams, the company can prove to be a compelling investment opportunity for long-term investors.
Symbotic
A leading player in the warehouse automation market (estimated to be worth $350 billion), Symbotic's shares are up by nearly 228% so far in 2023. The company's AI-enabled software technology claims several benefits for clients, including a fulfillment accuracy rate of 99.9999%, faster throughput speed, lower inventory requirements, and reduced costs. The company's automation technology also helps clients minimize manual intervention and heighten overall productivity. These capabilities are quite vital today, especially when global supply chains are being disrupted by factors like geopolitical tensions, wars, labor strikes, surging fuel prices, congested ports, and other logistical challenges.
Symbotic is already catering to several global giants in retail, wholesale, and the food and beverage industries such as Walmart, Target, C&S Wholesale Grocers, and Albertsons. In fact, Walmart accounted for nearly 87% of the company's total revenue in the first nine months of fiscal 2023 (ending June 30).
Furthermore, the recent formation of a joint venture named GreenBox, in partnership with SoftBank, is expected to help the company capitalize on the $500 billion annual warehouse-as-a-service opportunity. Starting in fiscal year 2024, GreenBox committed to procuring automation systems worth $7.5 billion exclusively from Symbotic over the next six years.
Symbotic's recent financials also lend themselves to investor optimism. Revenue rose by approximately 77% year over year to hit $312 million, while the earnings before interest, taxes, depreciation, and amortization (EBITDA) loss dwindled year over year from $22 million to $3 million in the third quarter of fiscal 2023. The company also ended the third quarter with a remarkable $23 billion order backlog.
Symbotic is trading at 2.3 times trailing 12-month sales, more than the industry median price-to-sales (P/S) multiple of 1.5. However, considering the robust adoption of its technology by large retailers, financials on an upward trajectory, and a strong order backlog, the premium valuation seems justified. Hence, Symbotic can emerge as a lucrative AI pick in the long run.
