Better Stock to Buy: Alphabet vs. Meta Platforms

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META) are two of the most prominent advertising businesses on the planet. Alphabet gets its ad revenue from the Google Search engine, while Meta gets it from its various social media platforms, including Facebook, Instagram, and Threads. Advertising can be a lucrative business on its own.

Still, both companies are also heavily investing in artificial intelligence, for what it could do for advertising, but also for other products to diversify their core businesses. But of these two, which stock is the better buy right now? Let's take a look.

Image source: Getty Images.

Alphabet's side businesses outperform Meta's right now

Both Google Search and Meta's social media platforms are incredibly successful businesses and generate a ton of money for each company. I don't think there's much use in comparing these two, as they are each successful in their own right and still growing rapidly despite their maturity. Instead, let's analyze the other business units to get an idea of how well their diversification efforts are doing.

For Alphabet, it also has a cloud computing business unit, which is a completely different industry from advertising. Essentially, Alphabet builds excess computing power and then rents that capacity out to various clients. It's seeing major growth from AI demand, which caused Google Cloud's revenue to soar 63% year over year during Q1.

Meta's side business has been a flop, so far. It has sunk billions of dollars into its reality labs division over the years to develop augmented and virtual reality products, with the ultimate form factor coming as AI glasses. Meta still hasn't released a product that's usable by the masses, and none of them have really caught on as a major consumer product. However, if one does become a hit, this could tip the scales in Meta's favor. But until that time, Alphabet is the clear winner here.

Winner: Alphabet

Meta is growing faster

Switching to financials, both companies are doing incredibly well considering their size and maturity. Alphabet's revenue growth rate during Q1 was 22%. Google Cloud was the star of the show, but Google Search also did well, with 19% year-over-year growth.

However, Meta's growth rates exceeded Alphabet's. In Q1, revenue soared 33% year over year. That showcases how strong Meta's social media empire is, and gives Meta the win in this category.

Winner: Meta Platforms

Meta is the cheaper stock

At a tied score, the next category will choose a clear winner. Valuation can make or break an investment, as the best company bought at the wrong price can still fail.

To analyze these stocks, I think using cash from operations to value the businesses is smart. Both companies have high data center capital expenditure bills, which affect earnings metrics. Cash from operations measures how much cash the business is generating right now, and gives an idea of what the company's finances would look like without any extra expenditures. From this standpoint, Meta Platforms looks like an absolute steal.

META Price to CFO Per Share (TTM) data by YCharts

Alphabet is more than twice the price of Meta's stock from this standpoint, and has reached a five-year high. While Meta's stock was valued at a cheaper level in late 2022 when the market was way more skeptical of its spending partners, it's priced at a low level and could be an incredible bargain.

With its superior growth rate and cheap price tag, I think Meta is the better stock to buy now. Alphabet isn't a bad investment at all, but its valuation has risen so much in recent months that the upside isn't as high as it once was.

Keithen Drury has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.