Meta Platforms (META +0.40%) is shaking up its artificial intelligence (AI) efforts and the industry as a whole. Earlier this month, it invested a total of $14.3 billion in Scale AI to take a 49% non-voting stake in the company and bring key personnel into Meta's laboratories. Despite the significant changes this brings to Meta and the industry, it's not what makes the stock a buy today.
Artificial intelligence is extremely important to the future of Meta Platforms, and the potential impact of the technology still seems to be underappreciated by the market. Meta's stock price is attractive, and it would be a buy whether it made the move to invest in Scale AI or not.
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What does Scale AI bring to the table for Meta?
Scale AI provides curated and labeled data sets to frontier model developers for AI training. It can also provide evaluation and help improve reasoning models with the help of human experts. It works with many of the biggest names in artificial intelligence, providing key services to ensure they can put out the best products.
Meta's investment includes a commercial agreement to spend $450 million per year on Scale's platform. Meta will likely gain access to proprietary data sets in an industry where good data has become incredibly important. More importantly, though, it brings Scale's founder and CEO Alexandr Wang onto Meta's payroll, where he'll head up a new AI "superintelligence" lab.
Meta has struggled to attract top talent to its AI labs, and the disappointing results of its latest Llama AI model release have made the talent gap more clear. It reportedly offered huge incentive packages to poach OpenAI employees in an effort to win over talent to catch back up with the competition, but most rejected it. With its investment in Scale, Meta is hoping it can correct that issue.
NASDAQ: META
Key Data Points
Building a leading-edge model is important for Meta, even though it provides its Llama models to the open-source community, albeit with restrictions for commercial use. CEO Mark Zuckerberg is more interested in the potential the most advanced AI systems could bring to Meta's existing products instead of making a product out of the AI model itself. But to build the best model with the most capabilities, it needs wide adoption from the developer community, and that won't happen if its performance is subpar.
So, adding Wang to the AI team is a great start, but Meta would've likely found a way to attract talent one way or another. The potential value of AI to the company is just too high for it to remain a barrier forever.
Is Meta stock a buy now?
Meta is already working on a service that could be the start of a long runway of AI growth. On Meta's most recent earnings call, Zuckerberg described an AI agent that could take a marketing objective and a budget and take care of creating and running an entire ad campaign by itself. It would design the creative, figure out who to target, and optimize images, videos, copy, and targeting to meet those objectives. It could potentially create individualized ads for Facebook and Instagram users to help marketers meet their objectives with minimal costs.
That's not some far-off dream, either. The company aims to offer the service by the end of next year, according to a report from The Wall Street Journal.
Such a service would not only lead to marketers' willingness to pay for ads increasing (since they won't have to spend time or money on developing ad creatives), but it would expand the number of advertisers. Lowering the barrier to entry should lead more businesses to advertise on Meta's platform, which should support higher pricing for its ads due to higher demand.
On top of that, Meta's ability to generate paid content for its users with artificial intelligence would also mean it can generate highly personalized and engaging entertainment content as well. That could lead to higher engagement rates and more time spent on the platform, increasing the number of ads shown and their value.
Few companies are in as good of a position to capitalize on the potential of AI compared to Meta. Not only does it have a massive platform to deploy its AI capabilities, but it has the capital to invest in the future of AI. Its investment in Scale and move to bring Wang and other personnel in-house is the company using its competitive advantage to its benefit, which is what makes it a great investment. And with the stock trading for roughly 27 times forward earnings, it could prove a bargain at the current price.
