Is Meta Platforms a Buy After AMD Deal?

While Advanced Micro Devices (NASDAQ: AMD) shares were the ones that zoomed higher following its deal with Meta Platforms (NASDAQ: META), the deal is a good one for Meta as well.

As part of the deal, Meta will purchase 6 gigawatts of AMD's graphics processing units (GPUs), while also agreeing to be one of AMD's lead customers for its sixth-generation EPYC central processing units (CPUs).

In exchange, Meta will receive warrants for up to 160 million AMD shares. The warrants will vest based on GPU shipments and AMD's stock price. The 160 million shares, when vested, would be about a 10% stake in AMD based on its current share count.

Is it time to buy Meta stock?

Meta is betting big on artificial intelligence (AI), with plans to spend between $115 billion and $135 billion in capital expenditures (capex) this year alone. Earlier this month, Meta struck a deal with Nvidia to deploy both its GPUs and new Grace CPUs in its data centers. It will be the first large-scale deployment of Nvidia CPUs not directly tied to its GPUs.

A week later, Meta turned around and struck a deal with AMD. Meta nicely gets a large stake in the company, which essentially gives it a discount on its chip purchase. The social media giant has also reportedly been in talks with Alphabet to use its Tensor Processing Units in its data centers, while also reportedly working with Broadcom to develop its own custom AI application-specific integrated circuits.

This is a smart strategy as Meta looks to break away from its reliance on Nvidia for computing power. If Meta can successfully deploy AI chips from different vendors in its data centers, it should be able to help lower costs and diversify its supply chain.

At the same time, Meta securing CPUs from both AMD and Nvidia is another forward-thinking move. With the rise of agentic AI, it looks like CPUs are going to become increasingly important and perhaps the next bottleneck in the AI race. With these deals, Meta is looking to get ahead of this.

Image source: Getty Images.

Few companies have been as good as Meta at incorporating AI into their core business to drive growth. Its AI investments have been paying off with strong ad impressions and price growth, which helped the company grow its revenue by 24% last quarter. While Meta has been criticized for its AI infrastructure buildout plans by some investors, the company is getting a strong return on its spending, so investing heavily in this area makes sense.

Trading at a forward P/E of just 21 times, Meta looks like an attractive buy at these levels, and it also just got a nearly $35 billion stake in AMD as part of its spending plans. In my view, Meta is a top stock to own.

Geoffrey Seiler has positions in Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.