After a powerful run-up in the share prices of many companies benefiting from artificial intelligence (AI), it is tempting to lump Meta Platforms (META +1.33%) and Palantir Technologies into the same bucket. But the two businesses and their prospects as potential investments differ significantly.
In short, Meta's extreme profitability, disciplined capital returns, and much lower valuation arguably set it up to outperform the enterprise AI platform specialist. Putting it even more bluntly, Meta looks like a much better stock to buy than Palantir. Yes, Palantir may continue growing at torrid rates for years, but its stock already bakes in near-perfection. Additionally, Meta has a more tested and dominant competitive advantage.
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Strong growth
Meta's latest quarter underscores just how healthy its underlying business is.
The company, which owns Facebook, Instagram, WhatsApp, and Threads, saw second-quarter revenue rise 22% year over year as both ad impressions and price per ad increased. Even more impressive, its operating income climbed 38% as its operating margin expanded to 43% (up from 38% a year ago), highlighting powerful operating leverage. Net income jumped 36% to more than $18 billion, and earnings per share was $7.14 -- up from $5.16 in the year-ago quarter. These are uncommon levels of profitability for any company, and they matter because profits fund the investments that keep Meta competitive while still leaving ample cash for shareholders.
Importantly, the quarter also showed the company's underlying growth engine is balanced: Daily active people across Meta's family of apps grew 6% year over year, ad impressions rose 11%, and price per ad increased 9%. This multi-faceted growth signals that both engagement and monetization are advancing in tandem.
A powerful competitive advantage
Of course, Palantir is growing even faster than Meta -- and it's throwing off a ton of cash, too. So, what's so impressive about Meta when comparing it to Palantir? One key factor is its staying power. Time and time again, Meta has shown it's essentially impossible to disrupt.
Case in point: When a new digital social format catches on somewhere else, Meta frequently ships a competing feature across its massive user base not long after. That copy-fast capability -- visible in products like Reels and features across Instagram and WhatsApp -- reduces the market share gains of would-be disruptors and keeps engagement robust inside Meta's apps.
Returning capital to shareholders
There's another area Meta easily beats Palantir: capital returns.
Meta repurchased roughly $9.8 billion of stock and paid about $1.3 billion in dividends in Q2 alone. Additionally, Meta's dividend is growing; in February, the board raised the quarterly dividend by 5% to $0.525.
Further, because Meta's earnings and free cash flow are so strong, there's still plenty of cash left over after dividends and repurchases to fund heavy infrastructure spending for AI. At quarter-end, Meta's cash, cash equivalents, and marketable securities totaled about $47 billion -- even after accelerated capital expenditures tied to data center and network infrastructure expansion.
Meta's mix of robust organic growth, a large cash cushion, and a disciplined (and substantial) capital return program makes the investment case for Meta extremely compelling.
NASDAQ: META
Key Data Points
Valuation favors Meta over Palantir
Valuation is where the gap becomes most striking. Meta trades around the mid-20s on a price-to-earnings basis. That is not particularly high for a company growing revenue at a rate exceeding 20% and with an operating margin of more than 40%. Palantir, meanwhile, carries an eye-watering P/E in the hundreds and a price-to-sales ratio of more than 137 as of this writing. Even if Palantir keeps executing well, those multiples leave little room for disappointment. By contrast, Meta's multiple looks far more reasonable relative to its scale, profitability, and cash generation.
Investors should still be mindful of a few key risks. Meta is increasing capital expenditures substantially to support AI and infrastructure, which can pressure near-term free cash flow. Further, advertising is cyclical; if the economy slows, ad budgets can tighten.
Still, Meta combines extreme profitability and scale with the ability to adapt quickly to new social trends -- and it is returning significant cash through buybacks and a growing dividend, while trading at a valuation that still looks reasonable against its results. Meanwhile, Palantir may remain an exciting AI story, but its stock price already assumes extraordinary growth for years to come. For investors deciding between the two, Meta offers the stronger case for outperformance from here -- powered by robust earnings, disciplined capital returns, and a valuation that does not demand perfection.
