4 Reasons Meta Platforms Is the Best AI Stock of the "Magnificent Seven"

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2 days ago

Meta Platforms is generating strong growth as its AI capabilities boost advertising revenue.
The company delivered an impressive Q1, helping to brush aside market concerns about a shifting economy.
The stock's several advantages relative to its "Magnificent Seven" peers may help it outperform in the second half of 2025.
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Amid the wild swings on Wall Street this year, it may come as a surprise to some investors that the S&P 500 index is up 1% in 2025, as of this writing. The stock market has overcome economic and U.S. trade policy concerns, fueled by a solid first-quarter earnings season.
Shares of Meta Platforms (NASDAQ: META) have outperformed, with a 14% gain year to date, amid market optimism regarding the company's ability to capitalize on the artificial intelligence (AI) revolution. In many ways, the long-term outlook for the social media and technology giant is as strong as ever.
Here are four reasons why Meta Platforms may be the best AI stock of the "Magnificent Seven" right now.
Meta Platforms distinguishes itself through pioneering innovation in social media, with over 3.4 billion monthly active users across its ecosystem, including Facebook, Instagram, and WhatsApp. These platforms are central to users' online identities and modern digital communication.
By leveraging this vast user base, Meta harnesses unparalleled data from user interactions, providing a key edge in its AI development, including the Llama 4 large language model (LLM).
Unlike hyperscalers like Microsoft and Amazon, whose AI strategies depend on selling cloud-based AI services to external clients, Meta's strength lies in directly applying its AI models to enhance its core advertising business. This approach boosts conversion rates through precision targeting while increasing user engagement with sophisticated content algorithms. This self-sustaining model enables Meta to refine and deploy AI innovations internally, unaffected by shifting AI data center demand.
Additionally, Meta's investments pave the way for transformative advancements in the metaverse and augmented reality. This strategic focus promises to create new revenue streams, underscoring Meta's bright outlook for driving future growth in the evolving digital landscape.
Meta's AI strategy is paying off, with signs that its operating and financial momentum is just getting started. In the first quarter of 2025, revenue rose 16% year over year, while net income soared 35% to a record $16.6 billion, or $6.43 in earnings per share (EPS) based on the AI-powered monetization. Despite higher AI investment, Meta generated $10.3 billion in free cash flow during the quarter, supporting long-term goals.
Wall Street analysts anticipate Meta's robust performance to continue, forecasting 14% revenue growth for 2025 and 2026, with average annual EPS growth of nearly 10% over the period. Meta's ability to adjust its capital expenditures (capex) within the 2025 guidance range of $64 billion to $72 billion, depending on market conditions, ensures sustained earnings and cash-flow strength.
Meta's strong earnings outlook underscores its operational resilience, which is particularly vital amid ongoing concerns about new U.S. tariffs targeting imported goods. Proposed tariffs are disruptive for technology titans like Amazon, Apple, and Nvidia, which rely on global supply chains.
In contrast, Meta's digital-first business model is relatively insulated from these tariff-related risks, allowing the company to maintain stability and capitalize on AI-driven growth regardless of trade policy shifts. This resilience positions Meta as a stable investment in an environment where tariff-related volatility remains a concern.
Meta Platforms stands out as a top AI stock because of its attractive valuation. With a forward price-to-earnings (P/E) ratio of 25, Meta trades at a large discount to its Magnificent Seven peers, including Apple, Amazon, Microsoft, and Nvidia, which average an earnings multiple closer to 32.
While internet giant Alphabet is the exception, trading at a forward P/E of 18, it faces significant regulatory scrutiny that introduces unique risks. Alphabet's dominant position in online search through Google has drawn intense scrutiny from global regulators amid ongoing antitrust investigations, a challenge Meta has largely avoided.
Given Meta's increasingly high-tech profile, double-digit earnings growth, and fundamental advantages, I believe the stock remains undervalued with significant price-appreciation potential.
Meta Platforms stock is a great option for investors seeking to build a diversified portfolio with exposure to high-level themes in technology and AI, two of the most important forces shaping the global economy. In my view, Meta is not just the best AI stock among the Magnificent Seven, but one of the top investment opportunities marketwide, and it's well-positioned to continue rewarding shareholders.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. 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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
4 Reasons Meta Platforms Is the Best AI Stock of the "Magnificent Seven" was originally published by The Motley Fool