Last year, the artificial intelligence (AI) giant. Nvidia it has reached a great climax. The company went beyond the technical experts Microsoft and apple to be the largest company in the world by market value. Nvidia surpassed its competitors – who a few years ago each occupied the space – and became the first to reach a market capitalization of $4 trillion.
So you might expect me to say that Nvidia is now aiming to reach a $9 trillion market cap – or that Microsoft or Apple have set themselves such a goal.
But another AI giant, which has underperformed its peers recently and is actually the cheapest of the Magnificent Seven tech giants, has recently taken a step that suggests it’s working towards that big market goal. The company issued certain stock options tied to a market value of up to $9 trillion by 2031, according to The Wall Street Journal. Let’s find out more — and consider whether the stock is a buy.
Image source: Getty Images.
From social media to AI
The AI player I’m talking about is Meta Platforms (META 3.91%). You may know this company more for its social media presence than AI, as it owns some of the most popular apps in the world – from Facebook to Instagram. But Meta has also been focusing on AI in recent years, and has really identified the technology as a key area of growth.
Meta is dabbling in AI, developing its own super-language, building data centers, and even setting up a superintelligence lab. To fuel its AI goals, the company has made talent acquisition and retention a top priority. Last year, Meta bought part of Scale AI and hired its co-founder, Alexandr Wang, to join Meta as chief AI officer.
And in recent days, Meta has taken another step to give certain executives an incentive to stay and help push the company forward. Meta is offering several executives, including chief financial officer Susan Li and president Dina Powell McCormick, stock options that will pay out based on Meta reaching a certain share price.
Options include several tranches, the lowest being the price of $1,116.08 and the highest being the price of $3,727.12. This would mean a gain of 88% or more than 500%, respectively, from the March 25 closing price of $594. And it would equate to a market value of over $2 trillion on the bottom and $9 trillion on the top.
Modern Change
(-3.91%) $-21.40
Current Price
$526.14
Important Information Points
Market Cap
$1.3T
Location of the Sun
$520.27 – $543.59
52wk Range
$479.80 – $796.25
Volume
2.2M
Avg Vol
15M
Gross Margin
82.00%
Separation Products
0.40%
Can the company achieve this great goal?
So, the question is: Should you buy this AI enthusiast? First, it is important to take a close look at these goals. Considering the average analyst forecast for Meta’s revenue of $296 billion in 2027, the company could reach a market value of $2 trillion. That would mean a price-to-sales ratio of 6.7, in line with its PS ratio today.
META PS ratio data by YCharts
However, that level of sales with a market value of $ 9 trillion would leave Meta with a PS ratio of more than 30. This is impossible from a mathematical point of view. And the short time frame to reach this market value goal will make it very difficult for Meta’s revenue to rise above analyst estimates by 2027 – and sustain a market value of $9 trillion.
That said, I won’t let this stop me from buying Meta stock. This plan shows the company is committed to developing and retaining the best employees. Meta is very profitable because of the strength of its social media business, which attracts ads. And the company’s potential success in AI could grow this valuable business and increase revenue opportunities over time.
Meanwhile, trading at just 19x forward earnings, Meta looks dirty, giving investors a good buying opportunity. Even if Meta doesn’t reach $9 trillion in market value in a few years, that’s okay. The stock is well positioned to continue as this AI boom continues, and that’s a good reason to include it in your portfolio, especially at today’s price.
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