These two leading internet companies have achieved good positions in the AI race.
No topic has attracted more attention in recent years than the sudden rise of all things artificial intelligence (AI). Business leaders are trying to position their companies to take advantage of this technology, while governments are likely lagging behind on regulation. And then there are investors looking for ways to capitalize on this trend.
It is a good idea to look at leading technology companies to get exposure. For example, alphabet (GOOGL 1.11%) (GOOG 1.17%) And Meta-platforms (META -0.74%) are investing aggressively to strengthen their competitive position. But which of these internet giants is the better AI stock to buy right now?
Even more powerful
Alphabet used AI and machine learning as early as 2001, when its Google search engine helped users with spelling. Today, AI is an integral part of the company’s DNA. “All six of our products with more than 2 billion monthly users now use Gemini,” emphasized CEO Sundar Pichai at the Conference Call on Q2 2024 ResultsGemini is the company’s AI model.
It’s worth noting that the company is unlikely to introduce a new, groundbreaking AI-based use case. Instead, the technology will be used to bolster Alphabet’s already popular offerings. For example, management mentioned that since adding AI summaries to search, the types of queries that can be answered have expanded.
And when it comes to Google Cloud, Alphabet offers a variety of solutions to its customers. The company is benefiting from the convergence of IT spending outside of the corporate premises as well as the increasing AI needs of enterprises. Google Cloud is becoming an indispensable partner for its customers, even more than it already is.
Meta’s hugely popular family of apps is used by billions of people every day, giving the company unprecedented reach to introduce and test AI features and gain valuable feedback that can guide product development efforts.
For these users, the company has released Meta AI, essentially a powerful chatbot assistant. Users can generate images, find food recommendations, and learn about new topics. And Meta AI is fully integrated into Ray-Ban smart glasses, allowing their wearers to interact with the technology seamlessly.
Meta generates virtually all of its revenue from digital advertisers, so the company needs to serve this valuable group. “Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we’ll do the rest for them,” founder and CEO Mark Zuckerberg said on the company’s second-quarter 2024 earnings call.
Alphabet and Meta are two of the most financially solid companies an investor can own if they want to bet on the AI craze. Both generate tens of billions of dollars in free cash flow each quarter.
And their Balance sheets are in perfect condition. This gives them unlimited resources to continue investing aggressively in expanding their network infrastructure, which they do not hold back from doing.
The best approach
Both Alphabet and Meta are clearly in enviable positions in the AI race. They already have thriving platform businesses with billions of users to introduce new features to. And there aren’t many companies with the talent and financial resources of these two.
Investors should consider their valuations as part of the analysis. Alphabet will become a Forward P/E of 22, while Meta is targeting a P/E of 25. These are the two cheapest stocks of the “Magnificent Seven,” which is obviously a compelling offer.
If I had to pick a single winner, I would go with Alphabet. But I see absolutely no reason why an investor couldn’t buy both stocks and give their portfolio sufficient exposure to the ongoing AI trend.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients do not own any of the stocks mentioned. The Motley Fool owns shares of Alphabet and Meta Platforms and recommends them. The Motley Fool has a disclosure policy.
