Zhitong Finance learned that in an interview, Brian Nowak, head of internet research at Morgan Stanley, explained how Meta Platform (META.US) uses artificial intelligence to monetize its huge user base, and said that the company has gone “the furthest” in monetizing artificial intelligence.

“Meta is still one of the earliest companies in how to monetize machine learning that generates artificial intelligence and supports GPUs,” Nowak said. They're building better models to analyze all the data more effectively. As they analyze more and more data, so does the amount of time each user spends. Each user has spent 30 to 40 minutes per day on Facebook, Instagram, and other platforms, and it's growing. Most importantly, their way of making money with more relevant ads is also improving this time around, which have higher click-through rates and actually drive more transactions. So when we consider this early generative AI cycle, Meta is still the company that has gone the furthest in building new models to better analyze its leading first-party data, drive more engagement, and monetize that engagement more effectively.”

Despite posting strong quarterly results, Meta's stock price fell as rising spending related to artificial intelligence once again made investors worry about return on investment. However, those who are optimistic about Meta believe that Zuckerberg's plans to continue investing in the field of artificial intelligence are entirely reasonable.

Meta uses artificial intelligence technology to drive growth in usage and ad revenue by improving algorithms and user experience. Meta also reports that its Llama artificial intelligence model has been widely adopted, attracting more than 0.5 billion monthly active users on its platform. As Meta expands its artificial intelligence infrastructure, this advance will enable it to achieve strong profitability over the next two years. Second, Meta's advancements in Reels and WhatsApp help manage capital expenditure growth as the company strives to remain competitive in the field of artificial intelligence.

Meta has developed a clear profit strategy for its generative artificial intelligence (Llama3 in particular), making it a strong competitor to rivals such as OpenAI's ChatGPT. Meta has a large user base of 3.3 billion, provides data and distribution advantages, and can occupy an important share of the GenAI market. Although short-term investors may be concerned about Meta's increased AI spending, its 24-fold expected price-earnings ratio (based on earnings of $24.62 per share for FY2025) makes it the second-most affordable large tech stock after Google (GOOGL.US) among its peers (Apple (AAPL.US), Amazon (AMZN.US), and Microsoft (MSFT.US)).

According to some predictions, Meta is expected to achieve earnings of $25-26 per share next year, slightly above consensus expectations. Factors such as a strong US economy, lower inflation, favorable online advertising pricing, and investment in artificial intelligence are likely to drive earnings growth. If Meta's valuation were in line with the industry average price-earnings ratio of 26.6 times, the stock price could exceed $600.

Alger Spectra Fund also stated in its Q3 2024 investor letter: “Meta operates the world's largest social network with over 3 billion monthly active users. More than 95% of the company's revenue comes from advertising, and the North American market and the international market split evenly. Earnings for the second fiscal quarter were strong. Revenue and profit exceeded analysts' expectations, and stock prices contributed to the results. Management also raised revenue expectations for fiscal year 2024, citing improvements in ad monetization. CEO Mark Zuckerberg said artificial intelligence played a key role in these successes as companies are using artificial intelligence to enhance targeting, measurement, ranking, and advertising. Higher user engagement also supported growth, driven by video rankings, content recommendations, and single video views. Additionally, video ad placement optimization and campaign automation will further drive profitability.”