Key Takeaways
- Both Meta Platforms (META) and Microsoft (MSFT) are trading roughly 25 % below their all‑time highs, presenting potential entry points for long‑term investors.
- Meta’s valuation looks attractive: forward P/E of ~18× versus the S&P 500’s ~22.2×, despite concerns over its aggressive AI‑related capex increase.
- Microsoft’s forward P/E of ~21.3× (based on fiscal‑2027 earnings) also sits below the broad market, and the company is already monetizing its AI business, with AI revenue growing 123 % YoY and an annual run‑rate of $37 bn.
- While Meta’s core advertising business remains strong (33 % YoY revenue growth in Q1), the market is wary of the scale of its AI spending; Microsoft’s AI spend is more tempered, and its Azure cloud growth (40 % YoY) underpins overall 18 % revenue expansion.
- The Motley Fool’s Stock Advisor service, which has historically delivered outsized returns (942 % average vs. 206 % for the S&P 500), did not include Meta in its current top‑10 list, highlighting differing analyst views.
- Investors should weigh Meta’s cheap valuation against execution risk in AI versus Microsoft’s proven AI monetization and steadier growth profile before deciding which (if any) to add to a portfolio.
Introduction
Finding artificial intelligence (AI) stocks that trade at genuine bargain levels is a challenge; most AI‑focused companies are either fairly valued or command a premium. Yet, a few names appear to be priced below their intrinsic worth after recent sell‑offs. Two prominent examples are Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT), each down roughly 25 % from their all‑time highs. This article examines whether those declines represent genuine buying opportunities or reflect justified concerns about each company’s AI strategy and growth prospects.
Meta Platforms Overview
Meta Platforms owns the ubiquitous social media family—Facebook, Threads, Instagram, and WhatsApp—and derives virtually all of its revenue from advertising on these platforms. “Meta Platforms is down by more than 25 % from its all‑time high established in August,” the article notes, a drop that has persisted for nearly a year. Despite the stock’s slump, Meta’s ad business remains robust: “In Q1, Meta’s revenue rose an impressive 33 % year over year thanks to the strength of the ad business.” The company has also leveraged its AI expertise to improve ad targeting and conversion, making its platforms more valuable to advertisers.
Meta’s Financials and AI Spending
The primary source of investor unease is Meta’s massive AI‑related capital expenditure. The firm “increased its capital expenditure guidance range by $10 billion, increasing the midpoint of its range to $135 billion.” While this spending aims to build future AI capabilities, “relatively little return on investment so far to show for the massive amounts it has already spent on computing resources” has left the market cautious. Nonetheless, Meta’s core advertising engine continues to generate strong cash flow, and the stock’s valuation reflects a disconnect between growth and price.
Valuation and Investment Case for Meta
From a valuation standpoint, Meta appears cheap. “At 18 times forward earnings, Meta’s stock is cheaper than the broad market S&P 500 (SNPINDEX: ^GSPC) index, which trades for 22.2 times forward earnings.” This mismatch between rapid top‑line growth (33 % YoY) and a discounted share price suggests upside if the company can demonstrate that its AI investments eventually translate into tangible returns. The article argues that Meta “still has a solid core business and should at least be valued for that,” implying that the current discount may be excessive unless AI spending fails to produce revenue.
Microsoft Overview
Microsoft’s sell‑off, while similar in magnitude, stems from a different narrative. The company has made “several smart moves in the AI build‑out, and it’s reaping the rewards.” Its AI business “grew at an impressive 123 % year over year pace during its last quarter, and its annual run rate crossed $37 billion.” Additionally, Microsoft’s cloud computing division, Azure, expanded at a 40 % year‑over‑year rate, contributing to an overall 18 % revenue increase. Unlike Meta, Microsoft’s AI spending is described as “more tempered,” reflecting a balanced approach to investment.
Microsoft’s AI and Cloud Growth
The article highlights specific data points: “Microsoft’s AI business grew at an impressive 123 % year over year pace during its last quarter, and its annual run rate crossed $37 billion.” Azure’s 40 % YoY growth underscores the strength of Microsoft’s cloud franchise, which remains a critical driver of total revenue. These figures suggest that Microsoft is not only investing in AI but is already converting those investments into measurable sales, reducing the uncertainty that clouds Meta’s outlook.
Microsoft Valuation
On the valuation front, Microsoft’s forward earnings multiple also appears attractive. “Microsoft’s stock now trades at 21.3 times expected fiscal 2027 earnings. (Its fiscal 2026 will end on June 30, so measuring it based on its fiscal 2027 expectations provides a better forward‑looking picture of how the market views the stock.)” This figure is below the S&P 500’s average forward P/E, reinforcing the notion that the stock is priced at a discount relative to the broader market. The article notes that, unlike Meta, Microsoft “does not face the huge question of whether or not it can effectively monetize an AI business, because it’s already doing it.”
Comparative Analysis and Risks
When comparing the two, Meta offers a cheaper earnings multiple but carries higher execution risk tied to its ambitious AI capex. Microsoft, while slightly more expensive on a forward P/E basis, provides clearer evidence of AI monetization and a steadier growth trajectory through Azure and its enterprise software suite. Investors must decide whether they prefer the potential upside of a turnaround story (Meta) or the relative safety of a company already profiting from AI (Microsoft). Both stocks remain below their peaks, but the underlying drivers of their valuations differ significantly.
Should You Buy Stock in Meta Platforms Right Now?
The piece concludes with a cautionary note for prospective Meta buyers: “Before you buy stock in Meta Platforms, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them.” The article then references the service’s historical performance, noting that a $1,000 investment in Netflix when it appeared on the list in December 2004 would have grown to $439,038, and a similar investment in Nvidia in April 2005 would now be worth $1,277,804. With Stock Advisor’s total average return of 942 % versus 206 % for the S&P 500, the omission of Meta from the current top‑10 list signals that, at least according to this service, other opportunities may offer superior risk‑adjusted returns.
Disclosure
Keithen Drury holds positions in both Meta Platforms and Microsoft. The Motley Fool maintains positions in and recommends both stocks, and adheres to its standard disclosure policy.
This summary is for informational purposes only and does not constitute investment advice.
https://finance.yahoo.com/markets/stocks/articles/2-bargain-artificial-intelligence-ai-003700269.html