Artificial intelligence (AI) investing experienced a shakeup when DeepSeek announced that its R1 model was trained for just $5.6 million. However, that doesn't include hardware costs or any pre-training that was done. Still, it left some investors wondering why U.S. competitors are spending billions of dollars on their AI models.
While DeepSeek has made a few impressive breakthroughs in terms of efficiencies, some of the capabilities of AI models developed by companies like Meta Platforms (META +0.22%) are jaw-dropping. Despite a scare from DeepSeek, I think Meta will be OK for 2025, and it's still primed to crush the market.
Meta is still heavily investing in AI despite DeepSeek's breakthrough
Meta Platforms may be more recognizable by its former name, Facebook. As with Facebook, it's the parent company of social media apps like Instagram, Threads, Messenger, and WhatsApp. This is still where Meta generates nearly all of its revenue, as $46.8 billion of its $48.4 billion in fourth-quarter revenue came from advertising on its Family of Apps.
The profits from this incredible segment are what Meta uses to invest in its various AI technologies, so it's playing with the house's money in the AI field. This is a key investment point for Meta: It doesn't need to win the AI arms race to continue being a successful investment. In fact, if Meta pulled out of the AI arms race (instead of spending $60 billion to $65 billion on capital expenditures in 2025 to help build out its AI computing power), it would generate an unbelievable amount of earnings.
NASDAQ: META
Key Data Points
Still, I think Meta should continue investing in the AI realm, as the breakthroughs it is seeing are incredible.
In 2025, CEO Mark Zuckerberg predicts that it will be possible to build an engineering AI agent that can code and problem-solve like a "good mid-level engineer." That's a huge breakthrough that could unlock serious cost savings for nearly any business that develops software.
Zuckerberg also stated that it's too early to assess if DeepSeek's breakthrough will affect how much money it spends on its AI servers. He pointed out that Meta is serving an AI audience of billions of people, whereas DeepSeek isn't. Still, it will look to implement some of the efficiency breakthroughs that DeepSeek discovered.
Meta's investing thesis is still intact despite a DeepSeek scare, but is the stock still priced right?
Meta's stock is attractively priced
Although Meta's stock fell initially following the DeepSeek announcement, it has already notched a new all-time high thanks to the strength of its fourth-quarter earnings. With revenue rising 21% year over year and earnings per share (EPS) increasing 50%, Meta has one of the strongest big tech businesses in terms of performance.
Still, the stock isn't all that expensive, trading for 32 times trailing earnings and 27 times forward earnings.
META PE Ratio (Forward) data by YCharts
Compared to other big tech companies (like Apple and Microsoft, which each trade at 32 times forward earnings), that's a reasonable price to pay, and it shows that Meta represents a great combination of growth at a reasonable price. While Meta didn't provide full-year 2025 guidance, an average estimate of 37 Wall Street analysts projects it will grow its revenue by 14% this year. That's incredible growth considering its size, and almost none of that revenue comes from AI.
Should Meta have a groundbreaking AI product that consumers pay for, it will open up a new revenue stream for the company. This combination of a solid base business with a potential wild card for massive growth makes Meta a fantastic pick in the AI space.
While the AI arms race is heating up, Meta is still delivering innovative breakthroughs, making the stock a top pick in the AI space.
