We recently published a list of Top 10 Trending AI Stocks in Q4. In this article, we are going to take a look at where Meta Platforms, Inc. (NASDAQ:META) stands against other top trending AI stocks in Q4.
As LLMs continue to hog data from the open internet for training, publishers are growing concerned about their intellectual property and compensation. In a latest development, The New York Times issued a cease and desist letter to Perplexity to stop using its data for training without permission.
Gene Munster of Deepwater Asset Management, while talking about this news on CNBC, said that these developments could prove “horrendous” for LLMs in the short term.
“The short-term economics for these large language models is horrendous, and so, I think it changes from bad to worse in the short term. I just want to put some quick context around those numbers. Right now, OpenAI pays NewsCorp about $50 million. They’re going to do about $4 billion in revenue this year and $11 billion next year, so, I mean, it’s measurable.”
However, Munster thinks in the long term, these licensing deals would not impact major LLM companies negatively given the ROI they’d be enjoying.
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The analyst also made a prediction about Perplexity. He believes the company would be acquired because it’s competing with a lot of “big guns.” He quoted Oracle’s Larry Ellison who said that it takes about $100 billion to be a “proprietary” large language model.
“So, you look at the $6 billion at OpenAI, and you need to be raising in chunks of billions, not millions. Understand that it’s a big raise for a private company that’s moving quickly, but they’re going to get acquired. They’re just up against too many other big guns here to try to get to those coveted four or five spots of the LLM landscape.”
For this article we picked 10 AI stocks trending based on latest news. With each company we have mentioned its hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 219
UBS recently published a list of stocks it believes will be industry leaders by 2030. UBS believes the next decade will favor companies that use technology to disrupt industries.
“We see these as leading disruptors in industries undergoing technological change, which should have a lasting impact,” said UBS analyst Hartmut Issel in a note.
The firm identified 29 companies it expects to deliver stronger earnings growth than the broader market (S&P 500, NASDAQ), supported by “positive, long-term trends,” according to Issel.
Meta Platforms Inc (NASDAQ:META) was among these stocks in the Enabling Tech category.
According to UBS, revenue for enabling tech could rise to $1.2T by 2025, or ~15% CAGR from FY20–25.
Meta Platforms Inc (NASDAQ:META) crushed past analyst estimates for its Q2 results, giving signs that the huge AI spending it’s doing would bear more results in the future.
The market has been reluctant about Meta Platforms Inc (NASDAQ:META) massive spending on AI. What does Meta want to achieve with its AI spending? The company wants to use AI to improve engagement and language models like Llama 3 to improve user interactions, boost engagement, and better monetize its 3.2 billion daily active users.
But can Meta Platforms Inc (NASDAQ:META) sustain this high spending? The company’s free cash flow margin is around 30%, and it’s well on track to report $50 billion in free cash flow this year. Based on this target the stock is trading at around 26 times this year’s free cash flow. Given the current trajectory continues Meta Platforms Inc (NASDAQ:META) can post $58 billion in free cash flow by next year, which means the stock is trading at 21 times next year’s free cash flow. With a whopping $35 billion in net cash, a strong user base, and a key position in the consumer-facing side of the AI industry, Meta Platforms Inc (NASDAQ:META) could be a solid long-term investment.
Rowan Street Capital stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“We are pleased to report that Meta Platforms, Inc. (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.
We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility — that’s simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There’s no escaping it; it’s the “price of admission” the market demands. If you take a look at the chart below, you’ll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop…” (Click here to read the full text)
Overall, META ranks 2nd on our list of top trending AI stocks in Q4. While we acknowledge the potential of META, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.