Meet the Monster Stock That Is Beating the Market

The euphoria surrounding "anything AI" has now come to an end. Wall Street is no longer just buying stories from all artificial intelligence (AI) companies. Instead, investors are now rewarding stocks with strong fundamentals and execution capabilities, and staying away from those with speculative technologies and no deliveries.

Even many AI-powered technology giants, such as Microsoft and Amazon, have come under pressure in the current challenging market environment. However, Meta Platforms (NASDAQ: META) has managed to stand apart, driven by its exceptional scale and geographic reach, impressive pricing power, and ability to monetize advanced AI technologies.

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While the benchmark S&P 500 index remains flat, Meta's stock is up by nearly 12% so far in 2025. The company delivered exceptional first-quarter results on April 30, leading its stock to surge by almost 19%. The company's revenue increased 16% year over year to $42.3 billion, while net income rose 35% to $16.6 billion. Both top-line and earnings have surpassed Wall Street expectations.

Here are some reasons why this stock is likely to continue outperforming the overall market in the coming months.

Social giant to AI powerhouse

Meta's evolution over the last two decades has been striking. Formerly known as Facebook, Meta has evolved from a mere college-based social networking site to a global digital advertising platform with a user base of 3.4 billion daily active users, which is nearly half of the worldwide population. This scale and geographic reach have given the company an unmatched data advantage and an unparalleled network effect -- two strengths that are nearly impossible to match.

The depth of personal connections (friends, family, colleagues) across Meta's social media applications (Facebook, Instagram, WhatsApp, Messenger, and Threads) makes it difficult for users to leave the company's ecosystem. The company has access to vast amounts of personalized data, enabling it to tailor its content recommendations, refine its ad targeting systems, and keep people engaged.

The success of AI-recommended content is evident, as it has led to a 7% increase in time spent on Facebook, a 6% increase on Instagram, and a notable 35% increase on Threads over the past six months. It is a flywheel effect. With more time spent on the platforms, advertisers and marketers are finding it easier to target users precisely, attracting more ad dollars that are reinvested in improving user experiences to attract even more users.

Not surprisingly, Meta's advertising business generated $41.4 billion in revenue in Q1, up 16% year over year, driven by an increase in ad impressions and average ad price.

New opportunities

While digital advertising is the cash cow, Meta is also focusing on other AI-powered business opportunities, such as business messaging, conversational agents, and open-source large language model development.

Business messaging through WhatsApp is already well established in markets like Thailand and Vietnam. Meta expects to adapt this business model for developed markets where business costs are higher.

Meta AI conversational assistant is used by nearly one billion monthly active users across the company's platforms to ask questions about recommended content. Recently, the company also launched a stand-alone Meta AI app in the U.S. and Canada. The company aims to build greater user engagement with this application in 2025.

Finally, Meta has also been developing the Llama family of large language models (LLMs) to power its own AI infrastructure. The company is also attracting developers and talent to its ecosystem, who will then help build a sticky enterprise customer base.

Robust financials

Meta boasts robust financials, with its Q1 revenue growing 16% year over year to $42.3 billion, significantly surpassing consensus estimates. The company's operating income rose 27% to $17.6 billion, representing a 41% operating margin, while net income rose 35% to $16.6 billion, implying a net profit margin of 39%.

Meta also generated $10.3 billion in free cash flow, representing a 29% free-cash-flow margin. The company carried $70.2 billion in cash and $28.8 billion in debt on its balance sheet at the end of Q1. While the company has planned for capital expenditures between $64 billion and $72 billion, its strong free cash flow and balance sheet can support this level of spending.

Valuation

Finally, Meta stock currently trades at 21.5 times forward earnings, well below its 5-year average of 25.2. Given its massive scale, data moat, strong network effects, and healthy financials, Meta appears to be a strong buy in May.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.