This Tech Giant's AI Strategy Can Send Its Stock Soaring in 2025

Meta Platforms (NASDAQ: META) demonstrated exceptional financial strength in the fourth-quarter fiscal 2024 (ending Dec. 31, 2024) on Jan. 29, with revenues and earnings surpassing analyst consensus expectations.

Not surprisingly, Meta's shares went up almost 9% in the ensuing days, and though the stock has since given up some of those gains, it's still up about 3%. Investors are impressed with the strength of the company's core social media and digital advertising business, as well as the success of its various strategic artificial intelligence (AI) initiatives in the current difficult environment.

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Total revenue was up 21% year over year to $48.4 billion, ahead of the Wall Street target of $47 billion. Diluted earnings per share (EPS) also rose 50% year over year to $8.02, dramatically higher than the consensus estimates of $6.76.

Although Meta shares have recently seen impressive growth, there is still a significant scope for future growth, potentially driving the stock higher in 2025.

An impressive AI strategy

Meta has implemented a multifaceted AI strategy that spans several areas, including AI-optimized infrastructure development (open-source models and data center capacity) and AI-infused consumer applications.

Meta has planned for a capex of nearly $60 billion to $65 billion for fiscal 2025, primarily involving investments in generative AI initiatives and in its core business. The company is investing heavily in expanding data center capacity for building computation power to train and deploy advanced AI models.

Last month, Meta announced that it will bring a gigawatt electric power worth of data center capacity online in 2025. To top that, the company is also building a two-gigawatt (or potentially even larger) AI data center. To bring the size of this data center into perspective, CEO Mark Zukerberg said it'd "cover a significant part of Manhattan" if it were to come up there.

Meta is also rapidly making progress in the open-source large language model (LLM) development space. The upcoming launch of the multimodal and open-source Llama 4 model with agentic AI capabilities represents significant progress in Meta's AI strategy. In the face of increasing competition from Chinese start-up DeepSeek, the need for American open-source AI standards for developing and running large language models has become strategically essential for national advantage. Meta is also committed to incorporating some of DeepSeek's advanced technology capabilities in their systems.

Besides infrastructure development, Meta has also made rapid advances in the agentic AI space. The company's highly intelligent and personalized Meta AI assistant had scaled its usage to over 700 million monthly active users globally by the end of 2024. The company aims to make Meta AI interactions more personalized and relevant based on users' previous queries as well as their engagement patterns on Facebook and Instagram.

Not surprisingly, Zuckerberg further expects to expand usage of Meta AI to over 1 billion users in 2025.

Core business remains robust

Meta's core social media and digital advertising business is also demonstrating remarkable strength and cash-generation potential, driven by its AI-based personalization and recommendation system and AI-powered marketing strategies. The company's Family of Apps segment (including social media platforms such as Facebook, Instagram, Messenger, Threads, and WhatsApp) has been growing at a healthy pace, with more than 3.3 billion people using at least one of these applications daily in December 2024.

Despite being a seemingly old platform, Facebook is seeing an increase in user engagement and reached over 3 billion monthly active users. Instagram has also emerged as a prominent platform for new content discovery and is seeing over 4.5 billion re-shares of its short-form video content Reels daily. Threads has built a monthly active user base of 320 million, while WhatsApp is also making rapid progress in becoming the leading messaging platform in the U.S.

Thanks to the exceptionally broad customer base and robust engagement, Meta's social media platforms remain a prominent choice for advertisers globally. Not surprisingly, the Family of Apps' ad revenues were up 21% year over year to $46.8 billion, in Q4. Meta also reported a 14% year-over-year jump in average price per ad and a 6% year-over-year rise in the number of ad impressions in Q4.

The integration of the Andromeda machine learning system, developed in partnership with Nvidia, has also helped improve advertising efficiency. This system has enabled the use of 10,000 times more complex models for ad retrieval.

The usage of complex AI models has helped Meta improve the personalization and relevance of ads, leading to a nearly 8% increase in ad quality based on the objectives tested. All this has translated into better returns for advertisers and improved user engagement.

Valuation

Meta is trading at 27.5 times forward earnings, which may seem rich initially. However, the valuation is reasonable when we consider the company's exceptional technological prowess in digital advertising, dominance in social media, the robust growth trajectory of its financials, strong AI strategy, and successful expansion in new markets.

Besides recent financial performance, Meta's anticipated growth trajectory supports its valuation. Analysts expect Meta's revenues and earnings per share to grow year over year by 14.6% and 5.4%, respectively, in fiscal 2025. The growth numbers seem modest but are very impressive considering the high base of $164.5 billion in revenues and $23.86 in EPS in fiscal 2024.

Moreover, the company has $77.8 billion in cash on its balance sheet, which gives it significant financial flexibility to fund ambitious capex plans while continuing to return value to shareholders as dividends and share repurchases. Meta is definitely a compelling buy right now.

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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 Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.