Investors appear to have taken leave of their senses—at least with regard to the value of Facebook parent Meta Platforms. The stock rocketed 20% today, a rise fueled by the company’s robust fourth-quarter results, giving Meta a market capitalization of $1.2 trillion. (Bloomberg reported that the market value of today’s gain was the single biggest in history!) The stock is now trading at 7.6 times forward sales, while Alphabet is trading at 5 times, according to Koyfin data. That’s the biggest gap between the two in several years (see the chart below). Investors are overlooking several warning signs about Meta while ignoring the potential for a big acceleration in Alphabet’s business.
Hanging over both stocks is the uncertainty about what they and other tech companies—including Microsoft and Amazon—will reap from the billions they’re pouring into artificial intelligence. Can they generate a meaningful return on investment from cost savings or increased revenue generated by the new technology? As a portfolio manager told my colleague Aaron Holmes in a story we published today, “We don’t have a lot of evidence of financial performance that we can directly attribute to AI. We have a lot of lip service, not much substantiation.”
