Meta's $14.3 Billion AI Bet: A Smart Move for Investors?

Meta's Strategic AI Investment

Meta Platforms is making a bold move in the artificial intelligence (AI) space by investing $14.3 billion in Scale AI. This investment gives Meta a 49% non-voting stake in the company and brings key personnel, including Scale's founder and CEO Alexandr Wang, into its fold. Despite the massive investment, the real question is whether this move makes Meta stock a compelling buy today.

The Importance of AI for Meta

Artificial intelligence is crucial for Meta's future, and the potential impact of the technology is still underappreciated by the market. Meta's stock price is currently attractive, and the company's strategic AI investments further enhance its value. Whether or not Meta made this specific investment, the stock would still be a buy due to its strong fundamentals and growth potential.

What Scale AI Brings to the Table

Scale AI provides curated and labeled data sets for AI training, evaluation, and improvement. This service is essential for developing the best AI models. Meta's investment includes a commercial agreement to spend $450 million annually on Scale's platform. This agreement will likely give Meta access to proprietary data sets, a critical resource in the AI industry.

More importantly, the investment brings Alexandr Wang, Scale's founder and CEO, onto Meta's payroll. Wang will head a new AI 'superintelligence' lab at Meta. This move is significant because Meta has struggled to attract top AI talent, especially after the underwhelming performance of its Llama AI model. The company had previously offered large incentive packages to poach OpenAI employees, but most rejected the offers. By investing in Scale, Meta hopes to address this talent gap.

AI's Potential for Meta's Products

CEO Mark Zuckerberg is more interested in integrating advanced AI into Meta's existing products rather than creating standalone AI products. For example, Meta is working on an AI agent that can create and run entire ad campaigns autonomously. This agent would design ad creatives, target audiences, and optimize content to meet marketing objectives. The company aims to offer this service by the end of next year, according to a report from The Wall Street Journal.

Such a service would not only increase marketers' willingness to pay for ads but also expand the number of advertisers. Lowering the barrier to entry should lead to more businesses advertising on Meta's platforms, which could support higher ad prices due to increased demand. Additionally, Meta's ability to generate personalized and engaging content with AI could increase user engagement and time spent on its platforms, leading to more ad impressions and higher ad value.

Is Meta Stock a Buy Now?

Meta is well-positioned to capitalize on the potential of AI. With its massive user base and significant capital, the company can deploy AI capabilities across its platforms. The investment in Scale and the addition of Wang and other personnel to Meta's AI team are strategic moves that leverage the company's competitive advantages. Given that Meta's stock is trading at around 27 times forward earnings, it could be a bargain at the current price.

In summary, Meta's $14.3 billion investment in Scale AI is a smart move that positions the company for long-term growth in the AI space. While the investment itself is significant, the broader potential of AI to enhance Meta's products and services makes the stock a compelling buy for investors.