Will Meta Platforms' New Artificial Intelligence (AI) Model Spark a Rally?

Meta Platforms (NASDAQ: META) is aiming to be a big player in artificial intelligence (AI). Its applications are already widely used by billions of people every day, and AI could make them more useful. It may also help the business unlock more opportunities to grow its revenue at a high rate in the future.

It has been investing billions into AI and created a new segment last year, Superintelligence Labs. Recently, the company unveiled its latest AI model, which, according to its data, puts it on par with other leading chatbots. Could this help the tech stock, which is down 5% this year, go on a rally?

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Muse Spark compares favorably against other AI models

Meta's new AI model, Muse Spark, reportedly does well on many key benchmarks when compared against ChatGPT, Grok, and other popular models. The company also claims its model is more efficient than others and requires less computing power. Investors appeared to be bullish on the new model, with the stock rising on the news.

The company has been investing heavily in AI, and the big test will be whether or not its AI model will be profitable and unlock significant growth potential for the business. Customers these days have many options to choose from, and even OpenAI has struggled with profitability despite surging popularity for ChatGPT. Meta's focus on efficiency is a good strategy, but whether Muse Spark will help grow the company's earnings is by no means a certainty.

Meta also doesn't have the greatest track record when it comes to spending heavily on tech, as it has invested billions in the metaverse, which has been nothing but a drain on its financials. The risk is that its AI strategy may end up going down the same path.

Is Meta's stock worth buying today?

The launch of a new and competitive AI model may be encouraging news for Meta investors, but it's far from being a game changer for the business. The vast number of AI models available these days is only going to make it more difficult for the company to turn a profit, as intense competition is not great for margins. That's why I wouldn't buy the tech stock on this news, and I doubt that it will lead to a longer-term rally.

At 27 times earnings, Meta's stock is trading at a richer valuation than the S&P 500 average of 24. Although its growth rate has remained strong in recent quarters, the uncertainty around high-tech spending and legal battles involving child safety makes the stock a bit too rich for the risk that it contains; I'd take a wait-and-see approach with Meta Platforms.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.