As tech giants race to incorporate artificial intelligence into their businesses, at least one analyst favors the strategy of Facebook parent Meta Platforms over Google parent Alphabet. That means Meta stock is still a buy, Loop Capital analyst Rob Sanderson wrote to clients on Wednesday.
"As AI strategies evolve and product work is being introduced, we are increasingly optimistic about Meta's position and remain uncertain about Google's," Sanderson wrote.
Loop Capital reiterated a buy rating for Meta stock and a neutral hold rating for Google.
Google will "have its hands full" defending its dominant search position against Microsoft's Bing as well as generative AI-powered services like ChatGPT, Sanderson wrote.
Meanwhile, Meta's "strategy to advance AI tools for creators and businesses is taking
shape and makes a lot of sense to us."
On the stock market today, Meta stock traded sideways, last up a fraction at 509.60. Google stock was also up slightly at 185.55.
Meta Stock: Adjusting To Competition
In Loop Capital's view, Meta has a more clear history of responding to competitors, whether its Snapchat or TikTok.
"Competition for user attention is constant, yet Meta has maintained dominant reach and scale within social media for well over a decade," Sanderson wrote.
Google, meanwhile, has been even more dominant over the internet search market.
"However, decades of competitive dominance can also enable complacency," Sanderson wrote. "Bears say this dynamic has been exposed by a disruptive new technology and rapid ascent of OpenAI, reinforced by multiple AI product blunders by Google."
Both companies are spending big on data centers to power their AI ambitions. The leaves Google and Meta with an "ROI riddle" to solve for all their capex spending. Again, Sanderson sees Meta as a potential "big winner" with its plan to provide AI tools for content creators and businesses.
"Helping creators and businesses better service followers and customers is value-add and will drive monetization opportunities," Sanderson said. "We don't expect this will be easy but argue that Meta has more experience than any company in developing and driving adoption of tools for creators and businesses."
Meta's Jackson Pollock AI Spending
Meanwhile, debates about the value of Meta's AI spending are heating up after the company first quarter earnings report. Chief Executive Mark Zuckerberg told Meta stock analysts in late April that Meta expects to spend $40 billion on capital expenditures this year, mostly focused on AI.
That is the most spending by any Big Tech firm as a percentage of annual revenue, Bernstein analysts wrote in a separate client note Wednesday.
Bernstein analyst Mark Shmulik compared the debate to the polarized views of Jackson Pollock's art.
For critics of Meta's AI spending, "the undefined time horizon of spending, and no clear commercial products is akin to throwing a bunch of paint at a canvas and hoping something sticks," Shmulik wrote.
On the other hand, Meta stock bulls could argue that the company has "as much of a right as anyone to win AI," the Bernstein analyst wrote.
Moreover, the spending could help fulfill Zuckerberg's vision of Meta serving as its own platform, rather than an application running on systems designed by other tech firms.
"Where does that leave investors?" Shmulik wrote. "Depends on how you value the art."
Meta Stock Near Buy Point
Bernstein, to that point, values Meta stock with a positive outperform rating. With the client update Wednesday, Shmulik reiterated a 575 price target for Meta stock.
Meanwhile, Meta stock opened trading Wednesday below a 514.01 cup-with-handle buy point identified by IBD MarketSurge charts.
Shares are nearly recovered from a slide that following Meta's first quarter earning report in April. Meta stock's 52-week high is 531.49.
Overall, Meta stock has gained 44% this year and 77% over the past 12 months.
