All “Magnificent 7” constituents have released their quarterly earnings, with the exception of Nvidia (NVDA), and it was a mixed bag at best. One key takeaway from their recent earnings was that markets are now getting jittery over the rising spending on artificial intelligence (AI). Big Tech companies are set to surpass $300 billion in capex this year. Overall, it would be fair to say that the AI euphoria is nearly over and investors are now more interested in monetization and immediate return on investment (ROI) rather than promises of long-term competitiveness through AI investment.
Magnificent 7 Stocks Have Looked Weak in 2025
The year-to-date price action in Magnificent 7 names are a testimony to investors’ apprehensions, and only Meta Platforms is up in double digits. Nvidia, Tesla (TSLA), Apple (AAPL), Alphabet (GOOG), and Microsoft (MSFT) are in the red while Amazon (AMZN) is up just about 4%.
While a flurry of factors ranging from President Donald Trump’s tariffs to concerns over a slowing economy, sticky inflation, and a somewhat hawkish Federal Reserve are also pulling down markets, there is also the “AI element.” Optimism over AI helped drive tech companies’ valuations higher, but investors are now questioning the premium valuations.
With all this in mind, Meta Platforms looks like the best-placed AI stock among the Magnificent 7.
The AI Story Is Looking Shaky
Tesla is a long-term AI story built upon the Optimus humanoid robot and autonomous driving. While there is a near-term trigger from the launch of its robotaxis, the company is a long way from realizing material revenue from AI products and services.
Looking elsewhere, Microsoft and Alphabet haven’t been able to convince markets about their ability to efficiently monetize their AI capex. Despite increasing their AI investments significantly, both companies haven’t seen a commensurate rise in their top line and the growth rates have instead been quite tepid.
For instance, Microsoft’s revenue grew by 12.3% in the December quarter – the slowest pace of growth since mid-2023. Moreover, its bottom line has risen by just about 10% each for three consecutive quarters in part due to higher AI expenses. Things are no different for Alphabet, and analysts see its revenues rising in low double digits this year.
Nvidia remains a credible AI story but the company’s valuations are a breaking point for me. Moreover, companies like Amazon and Alphabet are working on custom chips and might need fewer Nvidia chips in the future.
Why Meta Looks Like an AI Stock Worth Betting On
Amazon does seem to offer a compelling AI story and the technology would help it increase revenues, cut costs, and improve customer experience. Furthermore, reasonable valuations and presence in multiple high-growth industries make it an AI play worth betting on. However, between Amazon and Meta, I would choose Meta.
Meta CEO Mark Zuckerberg has said multiple times that AI will drive the company's growth in the short term. He sees the currently loss-making metaverse as a long-term growth driver. While many tech companies are still trying to figure out how to monetize their massive AI investments efficiently, Meta has been reaping the rewards. During the Q4 earnings call, Zuckerberg said that over 4 million advertisers use at least one of its generative AI tools and the number has risen four-fold in six months. Unlike many other companies, Meta Platforms has kept its AI models open source and believes that DeepSeek’s low-cost AI model – which too happens to be open source – is a validation of its strategy.
Meta AI is the most widely used AI assistant, with 700 million monthly active users, which Zuckerberg expects will rise to 1 billion this year. Currently, the company is focusing on “building a great consumer experience” with Meta AI but during the Q4 earnings call, CFO Susan Li said that there would be “pretty clear monetization opportunities over time, including paid recommendations and including a premium offering.” She also said, “We continue to see signs that Meta AI is helping people leverage our apps for new use cases.” Zuckerberg sees 2025 as a pivotal year for AI and said it might be possible to build an “engineering agent that has coding and problem-solving abilities of around a good mid-level engineer" this year. The company already has an AI-powered coding assistant, which Zuckerberg said is “helping our engineers write code more quickly.”
Meta expects its Q1 2025 revenues to rise between 8%-15% year-over-year. While the company did not provide the forecast for the full year, Zuckerberg said, “We expect the investments we're making in our core business this year will give us an opportunity to continue delivering strong revenue growth throughout 2025.”
Meta Stock Forecast
Sell-side analysts are also quite bullish on Meta, and the stock has a consensus rating of “Strong Buy.” While Meta’s mean target price is just about 2% higher than current levels, Tigress Financial recently raised its target price to a Street-high of $935 - almost 29% higher. I find Meta to be the best AI story among the Magnificent 7 in the short term and I believe the stock has room to run higher, given its still reasonable valuations and successful AI strategy.
