Episode summary
Valuing Meta (META): Undervalued AI Bet?
The Intrinsic Value Podcast
· · Hosts: Daniel Mahncke, Shawn O'Malley
Summary
Meta is framed as a cheap Magnificent 7 stock with a huge core business and a highly controversial set of optional bets. The hosts argue that the real engine is still advertising across Facebook, Instagram, and WhatsApp, while Reality Labs has already burned over $70 billion and could keep weighing on returns. Meta’s share price had fallen on the AI spending announcement, but the hosts think the market may be overlooking how much AI already improves the ad machine.
A large part of the discussion focuses on Reality Labs and the AR glasses thesis. The hosts are skeptical that VR headsets will become mass-market products, but they see AR glasses as more plausible because they could eventually act as an ambient layer for notifications, navigation, photos, and messaging. Even so, they think Meta is disadvantaged versus Apple and Google because it lacks a hardware-first brand and an app store ecosystem.
The more compelling part of the bullish case is Meta’s existing AI-driven ad system. The hosts describe Instagram’s targeting as extraordinarily effective, with AI helping Meta monetize attention better than peers. They also point to WhatsApp as a potentially underappreciated monetization channel, especially through business messaging and click-to-message ads, though they do not expect that to be the main growth driver.
Key takeaways
- The hosts think Meta is cheap relative to the Mag 7, with a forward P/E of 22 and a stock still below prior highs.
- Reality Labs has accumulated over $70 billion of losses, and the hosts view its payoff as highly uncertain.
- Meta’s ad business is already benefiting from AI, with end-to-end AI-powered advertising tools reportedly at a $60 billion annual run rate.
- The hosts see WhatsApp monetization as real but incremental, not a transformational new profit pool.
- On AR glasses, the hosts think Google and Apple are better positioned because Meta lacks an app-store ecosystem and a stronger hardware brand.
Notable quotes
“Meta is going to spend $100 billion on AI investments next year. And when I started my research, I was skeptical”
“The accumulated losses are over $70 billion. And the only way they could fund this obviously is by subsidizing it with the massive cash that the main business is generating”
“I don't think VR is the future. What I want to shift the focus on are the AR glasses”
“according to Meta, end to end AI powered advertising tools have achieved an annual run rate of exceeding $60 billion already”
How the episode opens
(00:00) Meta is going to spend $100 billion on AI investments next year. And when I started my research, I was skeptical. What are they spending a hundred billion dollars on?
Llama is way behind JPT or Gemini. And is a more efficient ad engine actually worth hundreds of billions of dollars in investments? Well, the market seems to think that Meta won't see stellar returns from this.
(00:24) And the stock is trading at a huge discount to other MAG 7 companies. and it's already dropped double digits on this investment announcement. But this might be a chance.
I mean, Llama is not Meta's AI story. Ads have already massively improved thanks to AI, and Meta is building a much bigger ecosystem in the background that could make it one of the biggest AI winners after all. Let me explain.
(00:50) Today marks the 56th episode of the Intrinsic Value podcast. That means we have looked at over a year's worth of companies at a weekly cadence. And I am kind of proud that this is only the third time we've covered a Magnificent 7 company.
We covered Google and Amazon before and while we did pass on Amazon, we invested in Google and that was actually one of our biggest winners last year. (01:18) Today we will look at a company that was dramatically sold off in 2022 and since then has returned about 600%. And yet the stock is down double digits from its all-time highs again.
And with a forward PE of just 22 times, it is the cheapest MAG 7 name out there. And in fact, it's trading at a lower forward PE than the broader S&P 500. (01:41) But before we get into today's pitch though, I would like to remind listeners that we opened up our fourth cohort of members into the intrinsic value community with 20 spots recently, and I actually hope there are still spots available at the time of recording because they are filling up fast.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- meta valuation
- ai bet
- digital advertising
- metaverse/reality labs
- whatsapp and ai content
Companies and tickers mentioned
- META
- Meta
Watch the episode
Watch “Valuing Meta (META): Undervalued AI Bet?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Intrinsic Value Podcast, this episode and its artwork belong to The Investor's Podcast Network. Octagon is not affiliated with the show; this page is an independent summary.
