Better Bargain "Magnificent Seven" AI Buy for 2025: Meta Platforms vs. Alphabet

Technology stocks generally have soared this year, helping drive the S&P 500 toward a 27% gain. Leading the way were a handful of stocks known as "Magnificent Seven" -- a reference to the 1960 Western. These megacaps have strong track records of earnings growth over time, and they continue to innovate, giving them the potential to generate revenue gains well into the future.

You'll easily recognize these companies' names:

• Meta Platforms (META -1.65%) -- owner of social media apps including Facebook.
• Alphabet (GOOG -1.16%) (GOOGL -1.11%) -- owner of Google and YouTube.
• Amazon -- the e-commerce and cloud computing giant.
• Apple -- maker of the iPhone.
• Microsoft -- a software and cloud computing giant.
• Nvidia -- the leader in the artificial intelligence (AI) chip market.
• Tesla -- the electric vehicle leader.

Their gains for the year range from Microsoft's 19% to Nvidia's 171%. Those performances have been great for those who already held shares of the companies, but they've done something a little less positive: They've lifted the companies' valuations.

Despite that, two Magnificent Seven stocks remain in bargain territory, and both companies are focusing on the high-growth area of artificial intelligence (AI). I'm talking about Meta Platforms and Alphabet, which trade at forward price-to-earnings ratios of 27 and 24, respectively. So which would make the better AI buy for 2025?

The case for Meta

Meta operates some of the world's top social media apps, including Facebook, Messenger, WhatsApp, and Instagram. More than 3.2 billion people use at least one of its platforms daily, which is how Meta has been able to generate billions in revenue from sales of digital advertising space. Companies that want us to buy their products or services know that they have a good chance of catching our attention while we're using one of Meta's apps. In the most recent quarter, the company's advertising revenue increased 19% year over year to more than $39 billion.

On top of this, Meta has gone all in on AI, developing the popular large language model (LLM) Llama and making it open source, meaning developers can freely access it. This focus on open source is positive because it's helping Meta grow its presence in the world of AI -- and that could eventually make it a leader in the space.

AI may be a key growth driver for Meta. The company aims to launch AI assistants and tools that could aid users in a host of ways, from leisure activities to business needs. This could result in users spending more time on Meta's apps. Management has said its ambitious investments in AI won't bear fruit overnight, though, so investors will have to be patient.

The case for Alphabet

Alphabet is both a user and a seller of AI. The company has developed its Gemini LLM and is using this technology to improve Google Search. Google already is the world's most used search engine, holding a market share of about 90%, and if it gets even better, it's likely to stay on top. For example, Google Search's AI Overview function sums up data about the topic you're searching for, pulling information from various sources. Alphabet says it's seeing "strong engagement" thanks to this and other AI-driven features, leading to more use of Google Search.

Alphabet, too, generates most of its revenue from selling digital advertising space. In the third quarter, Google's advertising revenue rose 10% to more than $65 billion.

Now let's talk about how Alphabet sells AI through its growing Google Cloud business. In the second quarter, Google Cloud passed some milestones, delivering more than $10 billion in revenue and more than $1 billion in operating income. And it increased both metrics in the third quarter. Through Google Cloud, customers can buy everything from computing time on a wide range of AI chips to access to a fully managed AI development platform called Vertex AI. The growth in cloud revenue shows that Alphabet is already benefiting from its AI investments.

And the better bargain AI buy is...

Before I reveal my conclusion, there's one caveat relating to Alphabet. It's defending itself against antitrust charges, and the Justice Department is asking the court to mandate a break-up of the company. This represents a risk, but it's clear Alphabet will fight any decision that it considers a negative result -- and right now, the antitrust-related risks would not stop me from investing in the stock.

So, which is the better bargain AI buy today? Though I like both of these Magnificent Seven players, I would go for Alphabet. The momentum it's seeing in its Google Cloud business makes the stock look reasonably priced. We're in the early days of the AI build-out, and that could keep growth going strong for Alphabet's cloud business well into the future.