The AI Dark Horse: Why Meta Stock Could Outperform NVDA in the Long Run

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It’s true the costs of running Nvidia (NASDAQ:NVDA) chips will cut the growth of Artificial Intelligence. But if any name can overcome those costs, and benefit it’s Meta Platforms (NASDAQ:META) stock.

Meta has just launched an AI chatbot, based on its Llama 3 language model, in India. Like Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), it’s based on what Meta does best. It uses your personal data.

The chatbot will help Meta collect data and build traffic. The release on it uses examples of Americans using the technology. It’s important to know how others will use it, if we’re to grow it.

But there’s a lot more to the Meta AI story than that.

AI and Meta Stock

Meta runs its own data centers. It is attuned to the need for efficiency and has a global footprint. All these will help it bring AI to the developing world.

The model has already made Meta stock uniquely profitable. It doesn’t pay for data and controls its own infrastructure. Think of it as a Lululemon (NASDAQ:LULU) among Cloud Czars.

During the first quarter, Meta was able to bring one-third of $36.5 billion in revenue to the net income line. Its capital budget this year will be $35-40 billion and it now pays a small dividend.

Yet despite being up almost 50% in 2024, Meta stock is not super-expensive, for a Cloud Czar. Hit next year’s earnings estimate and you have a forward price to earnings ratio of just 22.

Meta also has a unique AI model. Meta is using an open source approach. It doesn’t charge for downloading and tweaking its code. The more eyes on the prize, the bigger it gets.

Meta models won’t make what seem like the intuitive leaps of rivals, but over time they will adapt and become secure.

Meta’s data centers allow for maximum energy efficiency in model delivery. Since it isn’t charging for basic services, its usage ceiling is unlimited.

Meta Data is Free

A lot is being made of Meta delaying its European AI plans due to objections from regulators. Meta doesn’t need Europe. There’s a fire hose of data coming from India, Southeast Asia, Africa, and from South America.

Open source is benefiting Meta in other ways. Its Threads service is catching X, formerly Twitter, by tying itself to the open source Fediverse. Over time, Threads will be integrated with the open source ActivityPub model in 100 countries, adding to the fire hose of incoming data.

This is the key to what Meta, and most great companies, do. It copies innovation, manages it better, and spreads its reach around the world. It copied Snapchat with Stories. It’s copying TikTok with Reels.

Everything in these services becomes training data. It reaches its maximum audience because it’s free and available, thanks to Meta’s network of data centers. When Kenya’s Internet was cut over tax protests, Facebook’s sites kept working.

Alphabet is the only other Cloud Czar approaching this model, since it uses search data and gets YouTube videos free. But Alphabet has chosen a higher-cost path with its Gemini AI and will soon begin charging users for it. If truth is behind a paywall, it can’t get its pants on.

What’s left of the media, its business model wrecked by Meta, is starting to take notice of its power. The New York Times reports that CEO Mark Zuckerberg, who finally turned 40 in March, is popular again. This is thanks to Meta’s open source approach.

Note that Meta doesn’t open source its services, as Ben Thompson of Strategery writes. It uses open source for low-level infrastructure, to cut its costs. It then uses these lower costs to deliver things of value at a lower price point. There’s no price point lower than free.

The Bottom Line

Meta has been running the same game since Facebook copied Google’s data center innovations with its Open Compute Project 12 years ago.

Among the Cloud Czars, Meta stock is the best bet for a long-term investor.

As of this writing, Dana Blankenhorn had a LONG position in NVDA. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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