Meta Platforms has been investing heavily in artificial intelligence (AI) and recently launched many different subscription options related to AI.
AI could unlock a new growth opportunity for the business, although there is a growing amount of competition.
Despite its recent rally, the stock isn't trading at a high valuation with respect to earnings.
Social media and tech company Meta Platforms (NASDAQ:META) recently unveiled a personal artificial intelligence (AI) agent, Muse, which has the market buzzing about its stock. Shares of Meta Platforms have been rising sharply of late, and they're up around 24% in just the past month, hitting new highs along the way. However, the stock has given back some gains in recent days.
Nonetheless, there's renewed optimism around the tech stock and its potential to be a leader in AI. Could now be a good time to invest in Meta Platforms, or should investors wait for a more significant dip in price before doing so?
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Meta Platforms has had no trouble generating growth in recent years. Between its varied apps, including Facebook, Instagram, Messenger, and WhatsApp, it gives advertisers plenty of ways to reach their target audiences. And thus, the company's business has been doing just fine, accumulating tons of ad revenue. Meta reported 28% revenue growth in its most recent quarter, for the period ending June 30.
What's particularly encouraging is that with its new AI agent Muse, the company plans to monetize it by offering paid plans. The company also recently unveiled Meta One, a subscription service for its AI tools that can serve the needs of individuals and businesses, with pricing options ranging from just a few dollars to enhance social media apps to hundreds of dollars per month for high-powered business users.
The big test will be to see how much money Meta will be able to generate from its AI subscriptions, at a time when there is a flurry of options out there for both individuals and businesses.
Although shares of Meta have been rising of late, given its high level of profitability, it's only trading at 28 times its trailing earnings. And based on analyst projections, its forwards price-to-earnings multiple is 22. It's not a terribly expensive stock to own, given its strong assets and impressive growth.
At around $2 trillion, it's among the most valuable companies in the world, although its share price is still down around 4% over the past 12 months.
Ultimately, I'd take a wait-and-see approach with the tech stock because while there is a lot of potential growth related to AI, whether it truly materializes into a big business for Meta is by no means a guarantee, given the level of competition in the space.
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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.