Most people may know Meta Platforms (META +0.02%) for its social media portfolio -- as the owner of Facebook, Messenger, WhatsApp, and Instagram, it's part of our daily lives. In fact, more than 3.5 billion people around the world use at least one of these apps daily. Though Meta relies heavily on this business for its billion-dollar revenue, the company also considers another tech specialty area as a major part of its story -- and that's artificial intelligence (AI).
Meta has put the spotlight on AI in recent years, pouring billions of dollars into its development, hiring key AI specialists, and even creating a superintelligence lab. This part of the business may not be a major revenue driver today, but Meta is betting on its future potential.
Meta stock has climbed more than 200% over the past three years amid the AI boom, but it remains very reasonably priced at 22x forward earnings estimates. Now, should you buy the shares before a potential catalyst on April 29? Let's find out.
Image source: Getty Images.
Meta's social media business
So, first, let's talk about Meta's social media business and AI ambitions. The tech giant generates most of its revenue through advertising -- companies come to Meta for access to us, their target audience. They place ads across Meta's apps, as they know that's where they can often find us. All of this has resulted in earnings growth over time for the company. In the recent quarter, revenue climbed 24% to more than $59 billion.
And Meta is doing so well that it even launched a dividend in 2024, so the company has what it takes to invest in growth and reward shareholders.
As for AI, Meta is investing heavily in this area right now, and though the company acknowledges that monetization will take time, it's optimistic about the revenue potential. AI could supercharge Meta's revenue as it improves the apps -- keeping us on them longer and therefore prompting advertisers to increase their activity across Meta's social media platforms.
NASDAQ: META
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How Meta uses AI
Meta is also using AI to improve the targeting and performance of ads and even automate the process -- all of this should make advertising easier for customers and generate better results. This, too, may encourage them to allocate more of their ad budgets to Meta.
On top of this, Meta is developing AI products that could lead to new revenue streams. Meta recently released Muse Spark, a new AI model, and has said that after a period of previews, it will offer paid access to third parties.
Though Meta is investing significantly today -- with capital spending of at least $115 billion forecast for this year -- the move could open doors to a broader source of revenue down the road.
Of course, these high levels of spending have weighed on appetite for the stock at times, as investors worried whether the revenue opportunity would justify the investment. Certain companies -- such as chip designers and cloud players -- already are generating major growth from AI, so cautious investors may opt for them over Meta.
What's happening on April 29
Now, let's consider the event coming up on April 29 -- and whether you should buy Meta beforehand. On that day, Meta plans on releasing first-quarter earnings after the stock market closes.
In recent times, the company's earnings have beaten expectations -- except for the third quarter of last year due to a tax charge -- and AI plans have advanced smoothly. The question is: After the upcoming report, will investors continue to frown on Meta's spending levels?
It's impossible to answer that question, but here's the good news: Short-term stock performance isn't important. It's very unlikely that performance in one day or a few days will make or break your returns, as long as you choose to invest in quality players. All of this means it doesn't matter whether you invest in Meta today or if you buy the stock after April 29 -- as long as you hold on for the long term.
And at the current price, which is unlikely to change drastically in a matter of days, and considering Meta's track record of earnings growth and AI potential, the stock makes a compelling long-term growth buy.
