AI stock prediction: where will Meta stock and Amazon stock be in 2025

AI stock prediction: as we look ahead to 2025, both Meta Platforms (formerly Facebook) and Amazon are positioned to play significant roles in the evolving landscape of artificial intelligence (AI) and technology.

1. Meta Platforms (META)

Meta Platforms (NASDAQ: META), the parent company of Facebook, Instagram, and WhatsApp, is one of Nvidia's largest customers. Meta stock is near all-time high, Meta plans to invest between $60 billion and $65 billion in capital expenditures, which includes the construction of a major data center in Louisiana that will be equipped with GPUs primarily supplied by Nvidia.

Reasons for Investment in AI
Meta's commitment to AI is strategic, as the company stands to gain immensely from recent innovations. Over the last two years, Meta has significantly enhanced its recommendation algorithms for content on Facebook and Instagram by leveraging insights gained from developing large language models. This shift has resulted in increased user engagement and improved ad targeting, evidenced by a 6% rise in ad impressions and a 14% increase in average ad prices in the last quarter.
In the realm of generative AI, Meta has the potential to democratize content creation for users, thereby boosting engagement and user activity. The company is also developing tools to facilitate ad campaign creation and testing for marketers. Notably, its AI-driven Advantage+ shopping campaigns generated $5 billion in ad spending in the fourth quarter, with rapid adoption rates.

Future Opportunities
Further down the line, Meta has significant opportunities with AI chatbots for businesses using WhatsApp. The integration of its Meta AI service across various products, including the Ray-Ban Meta glasses, could create new revenue streams as the AI service scales to 1 billion users.
Currently, Meta's stock trades at 27.8 times forward earnings estimates, which becomes more appealing when considering its enterprise value-to-forward EBITDA ratio of just 15x. Although the company anticipates substantial depreciation expenses from its capital expenditures, if these investments yield the expected results, Meta's current valuation may be justified.
If Meta maintains a price-to-earnings ratio in the mid-20s while achieving earnings growth in the high teens, it could potentially become a $3 trillion company within three years. In this scenario, if Nvidia's stock stagnates, Meta could surpass Nvidia's market value.

2. Amazon (AMZN)

Amazon (NASDAQ: AMZN) has experienced remarkable growth in profitability over the past two years. Free cash flow has surged from negative $19.7 billion for the 12 months ending September 2022 to $47.7 billion for the most recent 12-month period, with this upward trend expected to continue.

Drivers of Success
The primary driver of Amazon's recent success is its cloud computing segment, Amazon Web Services (AWS). As the largest public cloud platform, AWS is developing tools that enable developers to build on cutting-edge foundation models for generative AI.
After facing challenges in 2023 as competitors gained ground, Amazon rebounded impressively in 2024, with operating income soaring by 60% in the trailing 12 months ending in September. This growth was largely fueled by margin expansion as operations scaled to meet investments.

E-Commerce Profitability
Amazon is also enhancing the profitability of its core e-commerce business in several key ways. The Prime membership program continues to thrive, driving strong subscription revenue growth. Additionally, advertising revenue is increasing across the marketplace and on Prime Video, providing a high-margin revenue source.
Improvements in its logistics network have allowed Amazon to lower shipping costs per unit, boosting operating margins. The company's North American operating margin reached 5.9% over the trailing 12 months, while its International segment turned positive in mid-2024.

Future Investments
Amazon is planning substantial capital expenditures, with expectations of around $75 billion in 2024 and even more in 2025. Historically, Amazon has ramped up capital spending before easing back to allow those investments to generate free cash flow. As management shifts focus to maximizing the returns on these investments, free cash flow is likely to see another significant increase.

Currently, Amazon stock trades at about 59 times trailing free cash flow, slightly above its historical average of around 50. This pricing suggests that investors anticipate faster growth in free cash flow moving forward. As free cash flow growth materializes over the coming years, Amazon's share price is expected to rise, possibly resulting in a $3 trillion valuation within the next few years, potentially surpassing Nvidia.

Conclusion

Both Meta Platforms and Amazon are positioned for significant growth in 2025, driven by their investments in AI and cloud technology. Meta is focusing on enhancing user engagement and advertising revenue through AI innovations, while Amazon is leveraging its cloud services and e-commerce growth to bolster profitability. With strategic investments and a focus on emerging technologies, both companies could see their stock prices rise substantially in the coming years.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.