Image source: Meta Platforms
A £10,000 investment in Meta Platforms (NASDAQ:META) five years ago is worth £21,475 today. I think that’s good for the whole stock market.
When they’re not watching oil prices, investors are trying to figure out artificial intelligence (AI). And Meta is an interesting case study.
Horizon Worlds
One of Meta’s recent ventures is Horizon Worlds. For those that haven’t heard of it (lucky them) it’s a sort of metaverse game.
The company announced that it was shutting the project down, before changing its mind almost immediately. But that’s not important.
The point is that Meta has lost a lot of money a lot on the metaverse since 2021. The total is around $84bn in operating income.
The thing is, though, the stock has done really well – handily outperforming the S&P 500 since 2021. And the reason is simple.
The metaverse project has been an almost total failure. But Meta’s social media platforms have been absolutely sensational.
Since 2021, they’ve generated enough high-margin revenue to take operating profits from $46bn to $83bn. That’s why the stock is up.
I think the lesson here is that a company with terrific core assets can withstand big mistakes. And that feels very relevant in today’s stock market.
Artificial intelligence
Investors are currently wary of companies spending big on AI. There’s a real risk these won’t work.
Two good examples are Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). The stock market has reacted badly to their plans to keep investing through 2026.
The question is how investors should assess that risk. And I think the example of Meta is an instructive one.
Both Amazon and Microsoft plan to spend north of $100bn in 2026. But they also have quality businesses behind them.
Amazon has AWS – its cloud computing division – and a growing advertising business. Both of these generate high-margin revenues.
Microsoft also has a cloud business – Azure – and a huge enterprise software unit. And those are extremely impressive operations.
None of this means AI investments are going to work out for either company. But I think it means the risk might be worth it for investors.
Risk taking
Amazon and Microsoft are used to taking risks that don’t ultimately work. Both companies have tried to launch smartphones – and neither succeeded.
There are plenty more examples of unsuccessful ventures. Despite this, both stocks have been terrific investments until recently.
The proposed AI spending is on another level. But Horizon Worlds shows that more money doesn’t guarantee success.
It’s really hard to know if the latest investments are going to work. So investors can’t afford to just ignore the inherent risks.
Fortunately, I don’t think they need to. In my view, there’s a good chance both stocks do well even if the AI investments don’t.
This is why I see both stocks as buying opportunities worth considering right now. In my own portfolio, I’ve been focusing on Microsoft.
The only reason for this is that Amazon is already a big part of my portfolio. So I’m looking to add to the company I own less of.
The bottom line
Can both stocks fall further from their current levels? Absolutely – that happened to Meta in 2022.
Will their strong operations ultimately come to the fore the way Meta’s did? My view is that this is also likely.
