GOOGL vs. META: Which AI/Big Data Stock Is Better?

In this piece, I evaluated two AI/Big Data stocks: Alphabet (GOOGL) and Meta Platforms (META). A closer look suggests bullish ratings for both, although a clear winner emerges.

Alphabet, Google’s parent company, generates revenue from online advertising, sales of apps and content on Google Play and YouTube, and fees on cloud services and other licensing revenue. Meanwhile, Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, also generates revenue from online advertising.

Shares of Alphabet have tumbled 12% over the last three months, bringing their year-to-date gain to 20%, which accounts for nearly all of the 21% one-year return. In contrast, Meta Platforms stock is up 12% over the last three months for a year-to-date jump of 69% and a one-year bounce of 88%.

The two companies’ equally opposite three-month performances create a setup for an interesting matchup, as outlined below.

Alphabet

At a price-to-earnings (P/E) ratio of 23.5x, there’s no ignoring the fact that Alphabet is cheap. While concerns about generative AI could threaten the technology giant, the current P/E is just too cheap to ignore, suggesting a bullish view is in order.

Notably, advertising still accounts for the lion’s share of Alphabet’s quarterly revenue, including $64.6 billion of the $84.7 billion in total revenue. Google Search alone accounted for $48.5 billion of total revenue. Thus, it’s easy to see why some might give credence to the concerns raised by a fund manager last week. However, I would suggest that his view might be a bit short-sighted, especially since Search revenue is still growing.

At the 2024 Quality-Growth Conference last week, Stephen Yiu of Blue Whale Capital explained why he’s bearish on Alphabet right now. He expects generative AI to significantly change Alphabet’s business model, although he does see some upside left in the near term.

Nonetheless, he maintains a negative view due to signs of a market share decline from Google Search, which once held a 90% share. Furthermore, Alphabet’s AI model, Gemini, has yet to meet the expectations set by competing models.

Despite Yiu’s longer-term concerns for Alphabet, this looks like a buy-the-dip opportunity. On a P/E basis, the shares have been range-bound since about April 2023. However, they’re currently at the bottom of the valuation range, suggesting another leg up could be in the offing soon.

Even if Alphabet does enter a period of struggle, as Yiu maintains, this company isn’t going anywhere anytime soon. In short, Alphabet is one of those stocks that’s good to buy and hold for the long term, although the size of the position in your portfolio might fluctuate based on valuation.