Meta Is Making Massive Artificial Intelligence (AI) Moves, but Is the Stock a Buy?

Meta Platforms (META -0.07%) is probably best known for its social media apps. From Facebook and Messenger to WhatsApp and Instagram, these platforms are leaders worldwide.

More than 3.2 billion people use at least one of them daily. This has helped the company grow revenue over time into the billions of dollars and even have enough earnings power to launch a dividend this year.

But Meta isn't only focused on social media these days. The company's major investment area in 2024 has been in the hot growth area of artificial intelligence (AI).

Since the start of the AI boom, Meta has been on board, progressively increasing its investment and presence in the field. The company is the developer of Llama, a large language model that powers Meta's AI tools, such as assistant Meta AI.

Meta has proven itself in the field of social media and today is making big moves in AI -- but is the stock a buy?

How Meta generates revenue

Since Meta has made AI such a focus, it's important to consider how AI could result in earnings growth down the road. Let's start with how Meta is generating revenue today.

The company sells advertising to companies interested in reaching their target audience. Since people spend so much time on the company's social media apps, Meta knows it can find a huge number of people there. Over time, this advertising revenue has increased, and in the recent quarter, it climbed 19% to more than $39 billion. And net income rose 35% to $15 billion.

As mentioned, more than 3.2 billion people worldwide used one of Meta's apps daily as of September. This represents a 5% increase year over year.

Meta launched its Meta AI assistant earlier this year and now has 500 million monthly active users. It's on the way to becoming the most used AI assistant by year-end. Meta Chief Executive Officer Mark Zuckerberg said he aims to develop assistants for every Meta user, to help them with everything from business to leisure activities.

This represents the key to future waves of revenue growth for Meta because if people spend more time on the company's apps -- as they would through the use of AI assistants, for example -- advertisers may increase their advertising on the platform. Meta also is using AI to help make the advertising experience better for these customers. More than 1 million advertisers used Meta's generative AI tools to create 15 million ads in the past month, Zuckerberg said during the recent earnings call.

100,000 GPUs

Meta has gone all in to make this possible, bringing on board the equivalent of 100,000 graphics processing units (GPUs) -- key chips for the training and inferencing of models -- this year. The company says Llama 4 now is training on a cluster of this size, and the smaller Llama 4 models should be ready early next year.

All of this has required investment, and Zuckerberg has said in recent earnings calls that monetization of its AI efforts won't happen overnight. The company hasn't completed the budget for next year yet, but the CEO says to expect another increase in spending on AI.

Let's get back to our question: Considering all of this, is the stock a buy? Some investors may not like the fact that Meta is pouring investment into AI right now.

"This part of the formula around kind of building out the infrastructure is maybe not what investors want to hear in the near term," Zuckerberg said in the recent earnings call. The problem is, these expenses may weigh on earnings in the coming quarters, and there's also the risk that Meta will build too much capacity, which could weigh on earnings down the road.

Investing and growing

Still, it's important to remember that Meta is a strong, profitable company, with the ability to invest in this high-potential technology -- and continue to grow and reward shareholders with a dividend at the same time. Down the road, AI clearly could increase the company's revenue opportunity, potentially adding to growth through the development of various products and services. So the risk of investing in AI now is one that may be worthwhile.

On top of this, Meta shares currently trade for 25x forward earnings estimates, which looks like a bargain considering the company's long-term prospects. That makes this stock a buy now, not only for its AI investments, but also for its complete growth story.