Artificial intelligence (AI) investing skilled a shakeup when DeepSeek introduced that its R1 mannequin was educated for simply $5.6 million. Nevertheless, that does not embrace {hardware} prices or any pre-training that was finished. Nonetheless, it left some buyers questioning why U.S. opponents are spending billions of {dollars} on their AI fashions.
Whereas DeepSeek has made a number of spectacular breakthroughs in phrases of efficiencies, a few of the capabilities of AI fashions developed by firms like Meta Platforms (META 1.20%) are jaw-dropping. Regardless of a scare from DeepSeek, I believe Meta will probably be OK for 2025, and it is nonetheless primed to crush the market.
Meta continues to be closely investing in AI regardless of DeepSeek’s breakthrough
Meta Platforms could also be extra recognizable by its former identify, Fb. As with Fb, it is the mum or dad firm of social media apps like Instagram, Threads, Messenger, and WhatsApp. That is nonetheless the place Meta generates practically all of its income, as $46.8 billion of its $48.4 billion in fourth-quarter income got here from promoting on its Household of Apps.
The income from this unimaginable phase are what Meta makes use of to speculate in its numerous AI applied sciences, so it is enjoying with the home’s cash in the AI area. This can be a key funding level for Meta: It does not must win the AI arms race to proceed being a profitable funding. In reality, if Meta pulled out of the AI arms race (as a substitute of spending $60 billion to $65 billion on capital expenditures in 2025 to assist construct out its AI computing energy), it will generate an unbelievable quantity of earnings.
Nonetheless, I believe Meta ought to proceed investing in the AI realm, as the breakthroughs it’s seeing are unimaginable.
In 2025, CEO Mark Zuckerberg predicts that will probably be attainable to construct an engineering AI agent that may code and problem-solve like a “good mid-level engineer.” That’s an enormous breakthrough that would unlock severe price financial savings for practically any enterprise that develops software program.
Zuckerberg additionally said that it is too early to evaluate if DeepSeek’s breakthrough will have an effect on how a lot cash it spends on its AI servers. He identified that Meta is serving an AI viewers of billions of individuals, whereas DeepSeek is not. Nonetheless, it can look to implement a few of the effectivity breakthroughs that DeepSeek found.
Meta’s investing thesis continues to be intact regardless of a DeepSeek scare, however is the inventory nonetheless priced proper?
Meta’s inventory is attractively priced
Though Meta’s inventory fell initially following the DeepSeek announcement, it has already notched a brand new all-time excessive due to the power of its fourth-quarter earnings. With income rising 21% 12 months over 12 months and earnings per share (EPS) rising 50%, Meta has one in every of the strongest massive tech companies in phrases of efficiency.
Nonetheless, the inventory is not all that costly, buying and selling for 32 occasions trailing earnings and 27 occasions forward earnings.
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META PE Ratio (Forward) information by YCharts
In comparison with different massive tech firms (like Apple and Microsoft, which every commerce at 32 occasions ahead earnings), that is an affordable value to pay, and it reveals that Meta represents an important mixture of progress at an affordable value. Whereas Meta did not present full-year 2025 steerage, a mean estimate of 37 Wall Road analysts initiatives it can develop its income by 14% this 12 months. That’s unimaginable progress contemplating its dimension, and nearly none of that income comes from AI.
Ought to Meta have a groundbreaking AI product that buyers pay for, it can open up a brand new income stream for the firm. This mixture of a stable base enterprise with a possible wild card for large progress makes Meta a incredible decide in the AI area.
Whereas the AI arms race is heating up, Meta continues to be delivering modern breakthroughs, making the stock a top pick in the AI space.
Randi Zuckerberg, a former director of market improvement and spokeswoman for Fb and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Keithen Drury has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Apple, Meta Platforms, and Microsoft. The Motley Idiot recommends the following choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.