Meta Platforms $14.3 Billion Bet on Superintelligence: A Bold Move for AI Leadership

Meta Platforms (META), the parent company of Facebook, has been on a roll in recent quarters, with a strong performance in Q1 2023 that saw a 16% increase in revenue to $42.32 billion, driven by AI-powered ad growth. The company has continued this momentum in Q2 2023, announcing a strategic investment of $14.3 billion for a 49% stake in Scale AI, a leading data-labeling company valued at $29 billion. This investment is expected to further solidify Meta's leadership in the AI space and could be transformative for the company. The addition of Scale AI's capabilities could directly support Meta's AI infrastructure and enhance applications like WhatsApp Business, which serves over 100 million businesses and is expected to become a key driver of revenue growth as AI-driven customer engagement tools gain traction. For instance, AI-powered chatbots that anticipate customer needs could help small businesses drive sales. Additionally, Scale's data assets might elevate Meta's Ray-Ban Stories smart glasses, enabling advanced features such as real-time translation or navigation that could rival offerings from competitors like Google's Gemini. Meta's decision to acquire a 49% non-voting stake in Scale AI appears to be a strategic move, particularly in an environment where regulatory scrutiny of Big Tech remains intense. By allowing Scale to operate independently, Meta avoids potential antitrust issues while still gaining access to the company's talent and valuable data infrastructure. This approach mirrors recent investment strategies by Microsoft with OpenAI and Amazon with Anthropic, where influence is exercised without complete ownership. Meta is also bringing on Scale AI's CEO, 28-year-old Alexandr Wang, to lead a newly formed 50-person "superintelligence lab," its most ambitious AI initiative to date. Wang will be tasked with advancing efforts toward artificial general intelligence (AGI), the pursuit of AI systems that can exceed human performance across a wide range of tasks. Backed by Meta's projected $65 billion in 2025 capital expenditures and a reported 1.3 million GPUs, the lab—staffed with top talent from Google and DeepMind—has the potential to position Meta AI as a global leader in next-generation AI development. Despite the strong performance and strategic moves, Meta's valuation remains relatively modest, trading at just 27x earnings per share (EPS), despite benefiting from significant earnings growth tailwinds. The market appears to be assigning little value to the company's AI initiatives, which is consistent with a long-standing pattern of conservative pricing around Meta's stock. However, the core story lies in its sustained and accelerating growth, and for long-term investors, value creation seems likely to continue, even in the absence of multiple expansion. Wall Street remains broadly optimistic on Meta, with the stock carrying a Strong Buy consensus rating based on 42 Buy, three Hold, and just one Sell recommendation over the past three months. However, the average 12-month price target of $699.81 suggests a limited 2.5% upside from current levels. This apparent disconnect reinforces the view that the market may be underappreciating Meta's underlying earnings growth trajectory and the potential impact of its ongoing AI initiatives.