As a company that supplies 80% of the training chips needed, Nvidia was probably the biggest winner of 2023 artificial intelligence (AI) Boom. That said, it makes sense for investors to diversify their holdings to target different sides of long-term opportunities.Let's see why alphabet (GOOG 2.06%) (Google 2.02%) and meta platform (meta 1.95%) It may be included in the portfolio even after 2024.
With a market capitalization of $1.79 trillion, Alphabet is already the fourth largest company in the world and needs significant momentum to drive continued expansion. But AI might be able to do that. Tech giants are significantly incorporating AI infrastructure into their cloud computing platforms, which could bring much-needed diversification and long-term growth.
Among AI companies, Nvidia has been particularly successful because it targets the “grab” side of the opportunity, maximizing the total addressable market for its products while minimizing competition. Google is developing a similar strategy (albeit higher up the value chain) by turning Google Cloud into a one-stop shop for all the data management and AI training needs of its enterprise clients. Google is not the only cloud service provider to adopt this strategy, but it has some important benefits.
According to CEO Sundar Pichai, 70% of generative AI startup unicorns use Google's infrastructure to train and run their models. This is a vote of great confidence in the quality and price of the platform. And Google plans to further enhance this advantage with its own AI chips, called tensor processing units. This reduces costs through vertical integration and reduces dependence on third-party suppliers such as Nvidia.
Alphabet's low valuation is hurting investors.With forward price versus revenue With a (P/E) multiple of just 22, the stock is significantly cheaper than its stock price. Nasdaq 100's Estimated 29.
Since the release of ChatGPT in late 2022, Meta's stock price has soared, increasing by a whopping 174% in the past 12 months alone. Investors are optimistic about the company's decision to pivot away from Metaverse development and focus more on generative AI that can optimize advertising and improve its consumer-facing platform.
At first glance, Meta has some clear advantages for AI efforts. Social media giants' business models have always included collecting and monetizing vast amounts of data. And generative AI opens up another avenue for this strategy. large language model (LLM) is an algorithm designed to create content from a trained dataset.
Meta is also adding conversational AI experiences across popular apps, introducing features ranging from more responsive image editing on Instagram to conversational chatbots with unique personalities on WhatsApp. Masu. While these efforts likely won't have an immediate impact on Meta's operational performance, they could help keep the platform's users engaged and generate valuable customer data.
Operationally, Meta is recovering from the challenges faced in 2022. Aggressive cost-cutting led to revenue in the third quarter (2023) of $34.15 billion, an increase of 23% year-on-year, and net income of $11.58 billion, an increase of 164%. And fired. And with a forward P/E of just 22x, it's not too late for investors to bet on the company's long-term potential.
Increasingly competitive situation
From 2024 onwards, investors should expect the AI landscape to become increasingly competitive, especially on the software side of the market. With that in mind, it makes sense to bet on a company with potential. economic moat. Alphabet and Meta Platform fit this requirement as they are a treasure trove of user data that can be used to train and improve LLMs. Both companies appear poised to outperform the market.
Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Will Ebifang has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platform. The Motley Fool has a disclosure policy.