1 Reason Why Meta Might Be the Best Artificial Intelligence (AI) Stock to Buy and Hold for 5 Years and Beyond
Key Points
Given that consumers don’t want to pay for AI subscriptions, the best way to monetize their usage might be through advertising.
Meta's massive user base, high engagement, ad ecosystem, and vast amount of data give it a tremendous advantage.
AI can strengthen the company's already powerful flywheel, leading to robust financial performance.
With a share price that has soared 996% in the past five years (as of Aug. 20) and a market capitalization of more than $5.2 trillion, the consensus view among the investment community may be that Nvidia is the optimal way to bet on the artificial intelligence (AI) boom.
However, investors should take a closer look at Meta Platforms (NASDAQ: META), which is in a very advantageous position. Here's one powerful reason that supports the case for why this business might be the best AI stock to buy and hold for five years and beyond.
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Consumers are different from enterprises, supporting ad-based monetization
Anthropic recently revealed it generated $65 billion in annualized run-rate revenue in July, seven times higher than a year ago. It cornered the AI market for enterprises, a smart move.
The ability for AI companies to monetize their products and services via subscriptions is much better when targeting enterprises. These corporate customers are fine paying for AI tools since they can possibly boost employee productivity. It's an operating cost that can potentially drive higher revenue and earnings.
Consumers are different. They aren't known for having a willingness to shell out money for software. They don't want to pay a monthly fee for access to an AI chatbot, either. Only 3% of households were paying for AI tools in February, according to Bank of America Institute.
The logical conclusion is that the best strategy is to offer AI products and services to consumers for free. And then this usage can be monetized through advertising. This plays right into Meta's advantage.
The company has distribution (3.6 billion daily active users across its family of apps), engagement (time spent on Instagram was up double digits in the second quarter), an established ad ecosystem (Ads Manager, Ads Auction, Advantage+), and a vast amount of data. This is why Meta's ad business is so dominant and lucrative.
It seems Mark Zuckerberg is well aware of the impact this revolutionary technology will have on his business. "Over the coming years I think that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today," he said on the Q1 2025 earnings call.
AI will strengthen the flywheel
Meta's management team certainly knows about this monetization opportunity. It makes sense why the company is spending so much money, even though it doesn't have a cloud computing platform like the other hyperscalers. Capital expenditures are expected to total $137.5 billion this year (at the midpoint).
Forget about the business having the opportunity to sell excess compute to outside customers at a premium. Meta is developing its own frontier AI models that can directly benefit exiting operations. This technology can improve the entire advertising flywheel.
There's a feedback loop Meta possesses that can be strengthened with AI. On one side, AI can enhance recommendations and boost engagement. On the other side, AI can provide advertisers with better creative and targeting capabilities, leading to improving return on investment and more ad spending from customers.
Consequently, Meta can collect more revenue. And this entire ecosystem is constantly getting better.
On the engagement front, Meta is working on introducing new consumer AI experiences. The company sees a future in which "billions of people" have personal agents working nonstop to help them achieve their goals. This is part of the overarching vision to introduce personal superintelligence to the world.
Maybe the best opportunity in the AI space doesn't exist at the infrastructure layer. Industry observers argue that as the AI trend progresses, chips, cloud platforms, and AI models will become commoditized.
So, lucrative investments might come from companies that can leverage this impressive technology to improve their current operations. It appears as though Meta is well-positioned to bolster its advertising machine.
Bank of America is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.