Which company — Amazon or Meta Platforms — will capture the biggest slice of Generative AI’s profit potential?
Despite Meta’s role in many societal problems, investors should expect the social network’s parent to outperform Amazon for three reasons:
- Meta is likely to grow faster.
- Meta’s core business has greater expansion and profit potential than Amazon’s.
- Meta’s rapid pivot to Generative AI appears likely to pay off sooner than Amazon’s.
Meta’s stock market performance in 2023 and 2024 has surpassed Amazon’s. Both companies have surpassed the performance of the Nasdaq and the Generative AI Stock Index this year from Brain Rush, my forthcoming book. Here are the details:
- Meta: +182% in 2023, +31% in 2024 through February 2.
- Amazon: +77%, +12%.
- GAISI: +82%, +11%.
- Nasdaq: +43%, +4%.
The leaders of both companies were optimistic. “We had a good quarter as our community and business continue to grow,” Meta CEO Mark Zuckerberg said in a news release. “We’ve made a lot of progress on our vision for advancing AI and the metaverse.”
“This Q4 was a record-breaking Holiday shopping season and closed out a robust 2023 for Amazon,” Amazon CEO Andy Jassy said in a statement. “As we enter 2024, our teams are delivering at a rapid clip, and we have a lot in front of us to be excited about.”
Meta Beats Amazon On Latest Performance and Prospects
Both companies exceeded expectations and raised guidance in their fourth quarter 2023 financial reports. Meta — with a 29% net margin in 2023 — grew faster, offered better guidance, and initiated a 50 cents per share dividend. Amazon — which generated a 17% net margin last year — is growing more slowly, but catching up in Generative AI.
Here are the key numbers for Meta:
- Q4 2023 Revenue: $40.1 billion — up 25% and $1 billion more than analysts forecast, according to Investor’s Business Daily.
- Q4 2023 Earnings per share: $5.33 — up 203% and 51 cents a share above the FactSet projection, reported IBD.
- Q1 2024 Revenue forecast: $35.8 billion — up 11.2% at the midpoint of the range — $1.9 billion above the FactSet consensus, noted IBD.
The highlights of Amazon’s report included:
- Q4 2023 Revenue: $170 billion — up 14% and $3.8 billion more than London Stock Exchange polled analysts forecast, according to CNBC.
- Q4 2023 Earnings per share: $1.00 — up from 3 cents a share the year before and 20 cents a share above the LSEG projection, reported CNBC.
- Q1 2024 Revenue forecast: $141 billion at the midpoint of the range — up 10.5% and $1.1 below above the LSEG consensus, noted CNBC.
Both companies cut costs. Meta cut 22% of its people — ending 2023 with 67,317 employees, noted IBD. Amazon laid off roughly 27,000 employees a year ago — ending 2023 slightly below the year-earlier level at 1.53 million, according to the Wall Street Journal.
Meta Beats Amazon On Generative AI Investment
To its credit, despite a long, money-losing bet on the metaverse, Meta is making big investments in Generative AI. Meanwhile, Amazon’s profitable AWS is a direct beneficiary of Generative AI and the giant company is investing in diverse initiatives to capture more value from the AI chatbots.
Meta’s Metaverse And AI Bets
Meta’s metaverse-focused Reality Labs division enjoyed a 47% boost to revenue — surpassing $1 billion in quarterly revenue on sales of the company’s new Quest 3 headset device, according to Meta CFO Susan Li. Sadly, the “division posted a loss of $4.6 billion, adding to the huge losses from the company’s metaverse bets,” wrote the Journal.
In 2024, Meta intends to investment the largest portion of its capital budget in AI. Meta expects 2024 capital expenditures to range between $30 billion and $37 billion — “driven by investments in AI and non-AI servers and data centers, including new data center construction,” CNN reported.
The company will spend billions of dollars on Nvidia’s AI chips to train Meta’s AI models. “We’re playing to win here and I expect us to continue investing aggressively in this area in order to build the most advanced clusters,” Zuckerberg said. “We’re also designing novel data centers and designing our own custom silicon specialized for our workloads,” noted CNBC.
Meta plans to conduct AI research and incorporate the technology into its products. Zuckerberg said, “Our updated outlook reflects our evolving understanding of our AI capacity demands as we anticipate what we may need for the next generations of foundational research and product development,” CNN reported.
Meta said it will invest significantly in AI ad tools — which helped the company recover from a change in Apple’s 2021 App Store privacy — and artificial general intelligence in 2024, noted CNN.
Amazon’s AWS Boost and AI Investments
Amazon lagged rivals such as Microsoft MSFT and Google when it comes to AI investments.
However, Amazon executives said AI revenues are “accelerating rapidly” as customers express interest in developing AI tools. Jassy said that every consumer business at Amazon is developing multiple generative AI applications, according to Yahoo! Finance.
AWS controls 30% of the cloud market and enjoyed 13% revenue growth and a 38% pop in operating income in the fourth quarter of 2024, according to the Journal.
AWS could increase its revenues by “tens of billions of dollars” as companies deploy AI in their operations. That’s because companies use cloud services to train and run large language models. Amazon said that capital expenditures will increase in 2024, in large part due to the expansion of its AI operations, noted Yahoo! Finance.
In September 2023, the company launched its Amazon Bedrock AI services, which allow customers to use models from Anthropic — in which Amazon invested $4 billion, Stability AI, and Amazon to build generative AI applications.
That’s not all. On February 1, Amazon launched Rufus — a new shopping assistant trained on Amazon’s product catalog — that “can answer customer questions and recommend products on the Amazon mobile app,” Yahoo! Finance reported.
Meta Beats Amazon On Stock Market Performance And Prospects
While Meta beats Amazon on its stock price performance, analysts favor Amazon stock for the next year. Sixty two analysts who cover Meta set a median price target of $410 a share — representing 4% upside according to CNN Business. Amazon stock has 16.2% upside — given a median price target of $185 from 59 analysts, CNN Business reports.
I disagree with these analysts and expect Meta stock to rise far more in 2024 given its faster growth, greater agility in deploying Generative AI, and its less asset-intensive business model.
