Last year, everyone talked about the "Magnificent Seven," a group of technology industry leaders that drove gains in the S&P 500. A few of those stocks recently have faltered, and now, the focus is on the "Fab Four" -- the four members of the Magnificent Seven that continue to roar higher. These market winners are Nvidia, Meta Platforms (META -2.19%), Amazon, and Microsoft.
Nvidia is the biggest gainer of them all, climbing 80% so far this year, and still represents a great stock to buy. But a better bargain exists among these Fab Four stocks. This particular player offers you a solid earnings track record, a strong moat, exposure to the high-growth area of artificial intelligence (AI), and promising long-term prospects. So forget Nvidia... this Fab Four stock is the one to scoop up right now.
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More than 3.1 billion users daily
I'm talking about Meta, a company almost everyone is familiar with, thanks to its family of popular social media apps including Facebook, Messenger, Instagram, and WhatsApp. More than 3.1 billion people use at least one of Meta's apps every day -- so it's no surprise advertisers flock to the platform to connect with these potential customers.
Advertising makes up the lion's share of Meta's revenue -- more than 95% of the total of $134 billion last year. And thanks to the company's strong moat (or competitive advantage), this is unlikely to change. It's difficult to switch to another social media platform knowing that all your contacts may not be there. This keeps fans loyal, and Meta's work to make its platforms more dynamic, fun, and practical could reinforce this loyalty.
This brings me to the company's investment in AI -- an area Meta says will be its biggest investment theme this year. The company already has brought Meta AI, an advanced conversational assistant, to its family of apps, but it isn't stopping there. Chief Executive Officer Mark Zuckerberg says he wants to roll out AI across Meta's products and services so that all Meta users can rely on AI to accomplish their goals -- from leisure to business.
That's why Meta is ramping up its computer power and aims to bring on board 600,000 graphics processing units (GPUs) by the end of the year. GPUs power AI models and platforms. For example, they drive the training and inference of large language models (LLMs) so that these tools can successfully solve complex problems.
Becoming an industry standard
Meta's developed its own LLM called Llama, and now Llama 3 is in training. Llama is the technology behind Meta AI and other AI products at Meta, but the company isn't keeping it all to itself. By making it open source -- or open to general use -- Meta gains valuable feedback to improve its technology and gains many users -- putting its software on the path to becoming an industry standard.
Down the road, Meta likely will continue to be a social media giant and, along with that, could also become an AI leader. Meanwhile, the company's financial position should allow it to invest in the technology needed to reach these goals. Meta made moves last year in what Zuckerberg calls the "year of efficiency" to get there, and in the latest quarterly report, Meta announced its first-ever dividend, showing its confidence that it has what it takes to fund growth and reward shareholders.
How much do you have to pay to get access to such a player? Not as much as you might think. Today, Meta is trading for only 24x forward earnings estimates, making it the cheapest of the Fab Four by this measure.
As I mentioned above, Nvidia still has plenty of growth ahead but its stock isn't the only game in town. Today, Meta is cheaper and offers you the potential of a winning AI story, along with the solidity of a highly profitable social media business. That means right now, I'd forget Nvidia and buy shares of this Fab Four bargain instead.
