This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Over the last five years, Meta Platforms (NASDAQ: META) stock has been one of the best names to own. Its shares have generated a total return of 192%, far exceeding the S&P 500' index's total return of 102% over the same period. Yet, I think Meta can match -- or even exceed -- its past performance thanks to the rise of AI-powered advertising.

First, some background. Meta generates an incredible amount of revenue, nearly $175 billion annually, or roughly $500 million per day. Almost all -- around 97% -- comes from selling ad space across its platforms like Facebook and Instagram.

Currently, most of those ads are designed and produced by advertising agencies. These companies work with brands to develop and track ad campaigns. Think Mad Men but updated for the 21st century.

That's where AI comes in. Meta has announced plans to begin rolling out AI-powered ads on its platform to allow brands to fully automate their advertising on Meta's systems by 2026.

This is a big deal, because according to Statista, ad agencies in the U.S. alone generated nearly $64 billion in 2022. If Meta's AI-produced ads are a hit, the company could begin to take some share of this lucrative market away from traditional ad agencies.

What's more, it's not a far-fetched idea. Many brands may be intrigued by what Meta's powerful AI could produce. In particular, Meta could use proprietary data to personalize ads, placing a custom-built ad into a user's feed.

For example, Meta's AI could potentially use its powers of deduction to highlight the features most important to the prospective customer (safety, cost, reliability, etc.). In other words, these ads might be more effective than what ad agencies could ever hope to produce for a mass audience.

In turn, Meta might land a new source of revenue, leading to further growth and a higher stock price. So, while there is still plenty of work to be done, AI-powered ads are one reason why investors should consider buying Meta stock right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jake Lerch has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms. The Motley Fool Australia has recommended Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Quick, what's the best-performing Magnificent Seven stock so far this year?

If you answered Meta Platforms (NASDAQ: META), you'd be right -- at least as of this writing. As of right now, Meta has generated a year-to-date return of 16.7%, beating out all other Magnificent Seven stocks. Only one other stock -- Microsoft -- boasts a double-digit gain so far this year. Nvidia, the hottest stock of the last five years, has only generated a return of 6% as of this writing.

So, is Meta now the best AI stock around? Let's take a closer look.

Meta's AI investments will begin paying off soon

First, let's get one thing clear: Meta spent big on AI. We're talking tens of billions of dollars, with tens of billions more to come over the next few years. The company spent lavishly on the metaverse, but also on AI infrastructure and data centers.

Of course, simply spending money doesn't guarantee a return. However, Meta's AI spending now appears far more focused than it did in years past. Specifically, the company has a plan to fully automate ad creation and placement across its suite of platforms such as Facebook and Instagram by 2026.

This could represent a revolution in how ads are created and how ad campaigns are run. In theory, Meta could cut out ad agency middlemen that charge lavish fees before an ad ever reaches a customer. Furthermore, Meta could use its enormous trove of user data to personalize ads, potentially increasing the return on investment for ad buyers.

Ongoing momentum is fueling higher price targets across Wall Street

In addition to its AI-powered ads strategy, Meta has other bullish catalysts on its side. Take its Threads product, which competes with X (formerly known as Twitter). Meta's Threads is now attracting 320 million to 350 million monthly active users (MAUs). That's up from about 150 million a year ago.

Combine Meta's AI initiatives with the growth of Threads and the company's excellent first-quarter results, and Wall Street is turning even more bullish on shares of Meta.

Analysts from major firms, including Bank of America and RBC raised their price targets for Meta's stock recently. These analysts pointed to better-than-expected first-quarter earnings along with Meta's AI initiatives as reasons for raising their price targets.

Is Meta Platforms an AI stock to buy right now?

To begin with, it's important to note that Meta Platforms might not be a stock for every investor or portfolio. While Meta is an excellent company and has a bright future ahead of it, its stock still boasts a rich valuation that might put it out of reach for value investors.

For example, its price-to-sales (P/S) ratio is 10x. That's not unheard of within the tech sector, but it remains far above the average P/S ratio of around 2x-3x. Moreover, Meta's P/S ratio of 10x is even higher than some of its peers. Alphabet, for example, sports a much lower P/S ratio of only 6x.

All that said, Meta remains a solid choice for investors looking for an AI stock. After all, just like anything else, you pay up for quality, and Meta is a quality business that continues to execute at a high level. Moreover, if the company can deliver on its AI initiatives -- including AI-powered ads -- I believe its stock could soar in the coming years. For me, that makes Meta an AI stock to consider right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should you forget Nvidia and buy this artificial intelligence (AI) stock right now? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of Motley Fool Money. Jake Lerch has positions in Alphabet and Nvidia and has the following options: long July 2025 $425 puts on Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Bank of America, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The first full month of 2025 is in the books, and the stock market is off to a decent start. The major indexes -- the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average -- were up 2.7%, 1.6%, and 4.7%, respectively.

In a change of pace from previous months, the Nasdaq took a back seat to the Dow, as sectors like financial services, energy, and industrials outperformed tech. Nevertheless, there were plenty of big winners in the Nasdaq-100. Here are the top five performers during the month of January. 18%

The top five

Below are the top five stocks in the Nasdaq-100 based on price performance between Jan. 1 and Feb. 1, 2025:

1. Constellation Energy (NASDAQ: CEG), up 34%
2. Arm Holdings (NASDAQ: ARM), up 29%
3. Atlassian (NASDAQ: TEAM), up 26%
4. Starbucks (NASDAQ: SBUX), up 18%
5. Meta Platforms (NASDAQ: META), up 18%

Two themes emerge from this list: artificial intelligence (AI) and better-than-expected earnings reports.

First off, artificial intelligence remained a winning theme. Constellation Energy, Arm Holdings, and Meta Platforms are tied to the AI sector through rising data centre energy demand, semiconductor design licensing, and AI implementation, respectively.

Meanwhile, shares of Atlassian surged after the company's fourth-quarter earnings release topped expectations, both in terms of results and forward guidance.

Finally, Starbucks also reported an upbeat earnings report. The company's new CEO, Brian Niccol, is working to turn around this iconic American brand, whose stock has underperformed the market for several years.

Are any of these stocks buys right now?

In short, yes, all of them are worth considering. That's because the catalysts that pushed these stocks higher in January remain in place. So, while they may not be suitable for every portfolio, growth-seeking investors would be wise to keep these stocks near the top of their watch list.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Jake Lerch has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Atlassian, Meta Platforms, and Starbucks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Constellation Energy. The Motley Fool Australia has recommended Meta Platforms and Starbucks. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Are Nvidia (NASDAQ: NVDA) shares in trouble? It's a question many investors have been asking after the stock tumbled more than 20% from recent highs.

Today, let's examine what has happened with Nvidia and whether another stock might be the smart choice for artificial intelligence (AI) investors in 2025.

How DeepSeek challenges the Nvidia thesis

A good rule of thumb for investing is to always have a thesis -- a rationale for why you believe a stock will deliver value over the long term.

For Nvidia, the most widely accepted thesis explaining the rapid rise of its stock is that the company will be the engine behind the AI boom. The AI revolution will require millions of GPUs, and Nvidia will be selling many of them, generating hundreds of billions in revenue and profits.

It's a solid thesis, and one that I share. However, the emergence of DeepSeek, which was developed in China, seems to undercut that thesis. Specifically, its designers claim that it took only a fraction of the computing power to train their model, and roughly $5.6 million.

If those claims are accurate, it would appear that American companies are spending far more than necessary on Nvidia GPUs, thus the thesis that its stock would come crashing down.

Why investors in Nvidia shares shouldn't panic

First of all, I do not believe DeepSeek undermines the investment thesis for Nvidia.

Part of the reason is that I view any news coming out of China -- particularly as it relates to AI -- with a healthy amount of scepticism. China is America's great geopolitical rival, and propaganda and misinformation are used by great powers to further their ends.

Moreover, since the U.S. Government placed export restrictions on certain Nvidia GPUs, there are various parties who may want to obscure which GPUs were used to train the DeepSeek model.

What's more, an analysis from the research company SemiAnalysis noted that the cost to train the DeepSeek model was likely $500 million, almost 100 times more than what its designers reported.

Therefore, in my view, there's no good reason to forget Nvidia shares right now. Nevertheless, some investors may want to trim back their holdings or simply move on. And in that case, my suggestion would be to check out Palantir Technologies (NASDAQ: PLTR).

Why Palantir is the next great AI company

For those who follow AI stocks closely, Palantir is one of the big names. However, for the average investor, it is far from an iconic company. Yet it's already a corporate giant.

As of this writing, Palantir's market cap is $241 billion. That makes it more valuable than McDonald's, AT&T, and American Express, to name just three legendary U.S. companies. Palantir is now the 32nd-largest American company overall, and it has all happened in a flash. A year ago, it wasn't even part of the S&P 500.

So, why is Palantir stock riding such a hot streak? The answer is that it aims to do something Microsoft did in the 1980s: become the operating system of the next technological revolution.

The company operates an AI-powered platform that can analyse an organisation's data and drive impressive efficiency. It takes the promise and power of AI hardware and puts it to practical use.

As a result, its fundamentals are near-perfect. In its most recent quarter (ending on December 31, 2024), Palantir blew away expectations, highlighted by the following:

• Revenue increased 36% year over year to $828 million.
• Overall customer count grew 43%.
• Adjusted free cash flow rose to $517 million.

The company continues to bring in new clients that are eager to use its AI platform. In turn, management provided upbeat guidance that came in well ahead of expectations, fueling another big increase in Palantir's stock. Shares are up more than 500% over the last 12 months.

To close, I still believe in Nvidia's thesis. I think the company is well positioned to benefit from the AI revolution for many years to come. However, for investors who are looking for an alternative that may have even more upside than Nvidia shares, I would consider Palantir Technologies. Like Microsoft before it, the company could be a decades-long winner in the making.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should you forget Nvidia shares and buy this artificial intelligence (AI) stock instead? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Jake Lerch has positions in AT&T, McDonald’s, and Nvidia. American Express is an advertising partner of Motley Fool Money. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Microsoft, Nvidia, and Palantir Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Microsoft and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Let's face it: 2024 has been all about the megacaps. Nvidia (NASDAQ: NVDA) is up 147% year to date; Meta Platforms is up 44%; Alphabet is up 33%.

Moreover, Nvidia, Apple, Microsoft, Amazon, Alphabet, and Meta Platforms now boast a combined market cap of $15.6 trillion. That's roughly equivalent to the size of the Eurozone economy, which has an annual gross domestic product of $15.4 billion, according to the latest estimates from the World Bank.

So, let's compare two of the best megacaps, Nvidia and Microsoft (NASDAQ: MSFT), to see which is better positioned to rule the second half of 2024 -- and beyond.

Nvidia

No company has experienced a more remarkable growth in its market cap over the past two years than Nvidia. The semiconductor giant has added a staggering $2.7 trillion in value, catapulting it to the position of the most valuable company on Earth, if only briefly.

Its rise is almost entirely thanks to the surge in demand for artificial intelligence (AI) and the hardware behind it. Nvidia designs graphics processing units (GPUs). These powerful devices are often linked together by the thousands -- even hundreds of thousands -- within data centers to help train the latest and greatest AI models.

While there are other companies in the GPU design space, Nvidia enjoys several key competitive advantages. The trust and familiarity AI developers have with Nvidia's GPUs and its software make it challenging for them to switch to another supplier. Moreover, Nvidia's extensive experience in GPU design prior to the AI boom gives it a unique edge over its competitors.

Microsoft

Despite the attention garnered by Nvidia's rapid ascent, it's important not to overlook Microsoft's impressive stock performance. The company once again holds the title of the most valuable company on Earth, a position it regained after briefly being overtaken by Nvidia. To maintain this lead, Microsoft is demonstrating its adaptability to the evolving tech landscape, particularly the AI revolution.

On that front, Microsoft has already begun integrating AI into its signature software applications. It now offers a generative AI assistant through its Microsoft Copilot add-on, which can analyze data, respond to queries, create images, and generate code.

What's more, Microsoft diverse business segments provide a layer of protection, should the AI revolution falter. The company has a massive cloud services unit and a successful gaming division among various other business segments.

Which stock is a better buy in the second half of 2024?

Simply put, both Nvidia and Microsoft are outstanding companies. They generate billions in revenue, profits, and free cash flow. They're also led by some of the top CEOs on the planet: Satya Nadella at Microsoft and Jensen Huang at Nvidia.

However, there are differences to evaluate.

For one, Nvidia's valuation is approaching record highs. Its price-to-sales (P/S) ratio is now 39x -- more than double its 10-year average of 15x.

Meanwhile, Microsoft's P/S ratio is also historically high at 14x. However, that value is less than half of Nvidia's on an absolute basis.

MSFT PS Ratio data by YCharts

In other words, both stocks are historically expensive, but Nvidia is far more costly in a head-to-head comparison.

At any rate, the rapid growth of the GPU market is what investors are counting on to bring Nvidia's valuation down. And while those growth estimates are impressive (analysts expect Nvidia's sales to rise 98% over last year), any signs of slowing growth could lead to a sharp sell-off in Nvidia shares.

In conclusion, I prefer Microsoft, given the stock's more reasonable valuation at current levels. That said, long-term Nvidia investors shouldn't bail on the stock now. Rather, they should remember that one of the keys to successful buy-and-hold investing is to let winners run. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Better megacap stock: Nvidia vs. Microsoft appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stock splits are all the rage in 2022. Amazon just completed its first split in more than a decade; Tesla plans a 3-for-1 split later this year. And Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) will execute a 20-for-1 split on July 1.

Although stock splits don't affect a company's fundamentals or overall market cap, they can impact how investors feel about a stock. For many people, paying $2,000 for a single share seems outrageous. So Alphabet plans to fix this problem.

With its shares currently trading near $2,150, the company's 20-for-1 split will bring the price down to a more manageable figure of around $100. And by lowering the price that much, Alphabet shares might attract more interest from retail investors. 

Why stock splits can spark retail investors' interest

For the average investor, high stock prices are a problem for several reasons. There's the obvious aforementioned sticker shock. But there's also a technical concern: portfolio diversification. 

To understand why diversification is an issue, consider how much money the average retail investors have in their brokerage accounts. Wealth management company Personal Capital produced a study showing that the median balance for investors in their 20s is $10,701. And this gets to the heart of the problem: Many people, particularly young people, can't invest $2,000 in a single stock without skewing their portfolio.

Most financial professionals advise capping any single stock at 5% of the portfolio's total value. This supports portfolio diversification, and it provides protection should a single stock experience a catastrophic one-off event. But in the case of Alphabet's $2,150 stock price, your portfolio would need to have a total value of at least $43,000 to satisfy the 5% rule. And that's if you wanted to own only one share. If you owned two shares, you'd need a portfolio worth $86,000 to stay diversified. Many investors simply do not have the capital to meet this 5% threshold. So they either pass on Alphabet shares or disregard the rule and blow past the 5% cap.

One way around this problem is through fractional share trading. Many brokerages now offer investors the ability to buy these smaller 'slices' of stock. In theory, this solves the problem of high-dollar stock prices. Yet, while this process can help, it's not without a few drawbacks. For one, not all brokerages offer it. Moreover, fractional share trading can come with additional fees or commissions, and fractional shares can be more difficult to sell than whole shares.

However, if a company initiates a stock split, these fractional share concerns are alleviated. As noted before, a lack of portfolio diversification can be an issue for younger investors, who have limited amounts of capital to invest. And once you consider that many of Alphabet's own employees are in their 20s and 30s, it provides another reason the company would want to split its shares: employee compensation. 

Once again, cutting the price of the shares helps both the company and investors. Alphabet will be able to dole out bite-size stock compensation; employees will be able to balance their portfolios more effectively.

Alphabet's fundamentals remain excellent

As for the company's fundamentals, Alphabet remains a leader in the digital advertising market. It has roughly 27% market share of all digital advertising. Whether it's through YouTube, Gmail, or its ubiquitous Google Search, the chances are high that you'll get shown an ad on one of Alphabet's apps or services today. And when that happens, Alphabet gets paid. 

That's a big reason why Alphabet's revenue for the last 12 months is $270 billion. That puts Alphabet No. 8 on the list of the largest American companies by revenue. To put that figure in perspective, Alphabet's revenue is a few billion dollars more than the combined total sales of Ford and General Motors. And, Alphabet's not done growing: the company is increasing revenue by 23% year over year.

Yet despite these rock-solid fundamentals, the stock is down 27% year to date. Investors who want to own the company for the long term would be wise to use the stock split to build a position. And now, they'll be able to do so without putting all their eggs in the Alphabet basket.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Alphabet's stock split: The real reason it matters appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet (C shares), Amazon, Ford, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Tesla. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.