Question: Why choose to invest in Meta stock (NASDAQ: META) at 25 times earnings when Google stock (NASDAQ: GOOG) is available at a lower multiple of 20? You might still want to, especially when you consider these key points:
- Growth: Meta’s revenue has grown more rapidly, with 22% growth in the past year, compared to Google’s 14% growth.
- Margins: Meta enjoys profit margins exceeding 42%, which means more of its revenue growth translates into shareholder profit. In comparison, Google’s operating margin stands at around 32%, so a smaller portion of its revenue growth results in profit.
- Tariffs: Both companies are similarly affected. Meta and Alphabet are exposed to the same risks from economic slowdowns because they rely heavily on digital ad revenue. When tariffs rise and growth slows, advertisers tend to spend less, affecting both companies in similar ways.
Is META A Safe Bet?
Some might consider Meta a “safe haven,” but its past market behavior suggests otherwise. For example, META stock dropped more than 75% during the 2022 inflation shock, and fell by around 35% during the uncertainty of 2020. So, it’s not exactly a safe stock. Our dashboard How Low Can Stocks Go During A Market Crash shows how key stocks have performed during and after the last six market crashes.
META’s stock price experienced a significant pullback, declining from nearly $740 in February to approximately $505 earlier this week. Subsequently, following President Trump’s announcement of a 90-day pause on reciprocal tariffs, the stock rallied to its current price of $585. For investors looking for a potentially more resilient and better-performing option, consider the Trefis High Quality portfolio. This strategy has delivered more than 75% returns since inception, as shown by its HQ performance metrics.
META Is Uniquely Positioned to Capitalize on the AI Revolution
If you’re confident in the long-term potential of AI, Meta Platforms offers a compelling opportunity. Unlike companies that only build AI, Meta also implements it across billions of users. This gives Meta a unique edge in monetizing AI advances through advertising, content suggestions, and improved user experiences. With substantial investments in AI R&D and the largest social media user base globally, Meta is well-positioned to benefit from AI growth—no matter which specific technologies win out.
Potential Risks to Consider
Despite its advantages, investing in Meta involves risk. One concern is that Meta’s earnings could fall short, or its growth could decline from 20% to around 15% soon. This slowdown may stem from the broader economy, where businesses are likely to cut ad spending to conserve cash. Additionally, unknown or unexpected shocks could negatively impact the stock. As a result, investors should be ready for possible steep declines—up to 40%. Selling during such downturns could hurt long-term returns.
Still, for those with a 3-5 year time horizon who can handle volatility, Meta’s current price levels might present a good entry point into AI. If you’re interested in strategies to weather downturns and even benefit from them, you might look into the Trefis Reinforced Value Portfolio, which has outperformed its all-cap benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 indices), or speak with a financial advisor experienced in bear markets. Staying calm and strategic during market swings is often key to building substantial wealth.
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