Tech Stocks Take a Hit, But Meta Shines
A Record High for Meta Amid AI Concerns
Despite a massive sell-off in US tech stocks, Meta Platforms Inc. reached a record high, signaling investors’ confidence in its artificial intelligence (AI) plans. This comes as Chinese startup DeepSeek’s open-sourced AI model poses a perceived challenge to Meta’s Llama.
Contrasting Fortunes: Meta and Microsoft
Meta’s stock remains undeterred, while Microsoft Corp.’s shares have faltered due to concerns about heavy AI spending, including its stake in OpenAI, a key competitor to DeepSeek. Both companies will report on Wednesday, with AI returns being a key theme.
Meta’s AI Strategy Pays Off
According to Gene Munster, co-founder and managing partner at Deepwater Asset Management, “Meta is in a better long-term position with AI than Microsoft, and the success of DeepSeek validates its open-source strategy.” Llama could become “the DeepSeek of the West” as US companies are unlikely to build off a China-based model.
Investors Welcome Meta’s AI Spend
Investors have welcomed Meta’s spend because of the potential for AI to improve engagement and advertising. In contrast, Microsoft’s AI road has become less clear, and the impact will be less immediate.
Meta’s Stock Soars
Meta shares are up 16% in January, on track for their biggest one-month gain since February, building on last year’s rally of more than 65%. Microsoft has risen 6% this year, and only rose 12% over 2024.
Spending Commitment
Both Meta and Microsoft have stressed a commitment to spending. Meta plans to invest as much as $65 billion on AI projects in 2025, while Microsoft plans to spend $80 billion this fiscal year.
Market Sentiment
The market seems to be embracing Meta’s spending boost, thinking it will lead to a good return. However, the offset to this spending is the impact to profitability, which is not yet clear.
Valuation Comparison
Meta trades at 25 times forward earnings, only slightly over its 10-year average, making it the cheapest megacap stock outside Alphabet Inc. Microsoft, on the other hand, trades at more than 31 times estimated earnings, above its long-term average.
Tech Selloff
Monday’s selloff, which erased more than $590 billion from Nvidia Corp.’s market capitalization, could be an overreaction. However, AI spending is key, and DeepSeek could mean a complete change in how we view the efficiency of that spending.
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