Club holding Meta is likely to be a winner in the nascent generative AI battle

Published Wed, Mar 1 20233:40 PM ESTUpdated Wed, Mar 1 20233:47 PM EST

Meta Platforms (META) is muscling its way into a heated AI arms race just as competitors Microsoft (MSFT) and Alphabet (GOOGL) are making big strides. But CEO Mark Zuckerberg appears poised to harness the technology to transform Meta's platforms like Instagram and WhatsApp, which should ultimately send the Club stock even higher. Zuckerberg earlier this week announced a new Meta product group focused on incorporating generative artificial intelligence into some of its platforms, part of a bid to grow advertising revenue and enhance user engagement. Generative AI encompasses a set of machine learning techniques that allow computers to generate text, images and other media in response to human queries. The technology has reached an inflection point in recent months, as OpenAI's large language model ChatGPT has gone viral . Earlier this month, Microsoft — a major investor in the OpenAI research laboratory — used the same technology to launch an AI-powered version of its Bing search engine. Google parent Alphabet also unveiled plans this month to launch its own AI chatbot, known as Bard. Zuckerberg said Meta is experimenting with how generative AI can be applied to its text-focused applications like WhatsApp and Messenger, as well as image-based platforms like Instagram, with the aim of developing automated and curated content for ads. Meta relies on ad revenue for most of its earnings. The company last week launched its own large language model , LLaMA, designed to help scientists and engineers explore applications for AI. The Facebook parent's generative AI capabilities are competitive, according to Mark Zgutowicz, a research analyst at Benchmark. "They're probably perhaps a little in front, or at least on par with, Google and probably ahead of Microsoft when it comes to generative AI," he said in an interview with CNBC. Meta's value proposition, as Zgutowicz explained it, is to provide advertisers with generative AI tools that bring down the cost of developing ads, while allowing for more targeted campaigns that change regularly. But he also urged caution: "The ability to scale this into a real revenue opportunity will perhaps take more time than most investors think." The push into generative AI comes as Zuckerberg has promised investors 2023 will be Meta's "year of efficiency" after alienating many shareholders by overspending in the metaverse at the expense of the company's money-making platforms. As a result of his recent commitment to rein in costs, shares of Meta have soared more than 45% this year, after having fallen by nearly 65% in 2022. However, generative AI "represents yet another risky venture into which Zuckerberg is putting Meta," according to David Trainer, CEO of investment research firm New Constructs. "Generative AI is certainly the most popular new fad in tech, but it's also becoming a crowded space into which lots of capital is being poured. The upside could be huge for Meta and so could the downside," Trainer wrote in an email to CNBC. For his part, Zuckerberg earlier this month called AI the "foundation of our discovery engine and our ads business" that will "enable many new products and additional transformations within our apps." META 1Y mountain Meta Platforms (META) one-year performance. The Club take Meta Platforms isn't late to the AI Party. In fact, we expect them to be a leader. We also expect Meta to benefit from it's partnership with Club holding Nvidia (NVDA), whose semiconductors and related software are integral to the generative AI field. Meta recently partnered with Nvidia in building an AI supercomputer that will help Meta's researchers build better AI models. "I think they have a much bigger plan in artificial intelligence than they're letting on," Jim Cramer said of Meta on Tuesday. Moreover, he added, Meta "is not letting on how close it is to Nvidia." Meta management is working diligently on AI-powered content creation for Instagram and WhatsApp, but we also think they're still doing a lot of AI work in the metaverse. And while AI appears to be a significant long-term catalyst for the company, we want to make sure Meta doesn't spend too much this year and sticks to its commitment to better manage costs. At the same time, we recognize AI is still a new field and that significant tailwinds could take a while to materialize. Meta stock, despite the notable jump this year, is still inexpensive relative to its history. We're staying long-term shareholders of Meta and would consider buying more shares on a pullback, reiterating our 2 rating on the stock. (Jim Cramer's Charitable Trust is long META, GOOGL, MSFT, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Founder and CEO of US online social media and social networking service Facebook Mark Zuckerberg reacts upon his arrival for a meeting with European Commission vice-president in charge for Values and Transparency, in Brussels, on February 17, 2020.

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