Both Meta (META) and Microsoft (MSFT) are at the forefront of the AI revolution. However, which investment is likely to deliver stronger long-term returns? Based on my analysis, Microsoft is better positioned for long-term stock performance, given its stable monetization strategy and significantly more attractive valuation. While I remain bullish on both investments, my preference is heavily skewed toward buying Microsoft over Meta at this time.
I’m bullish on Meta, which has been investing heavily in AI, committing a substantial $35 billion to the technology in 2024 alone. The company is leveraging its vast ecosystem of apps—including Facebook, Instagram, WhatsApp, and Messenger—to seamlessly integrate AI capabilities. For instance, the introduction of Meta AI, an assistant built on its Llama 3 language model, has reached 500 million users within just seven months.
In addition to its aggressive AI investments, Meta has differentiated itself by open-sourcing its AI models, such as Llama 3. While competitors like OpenAI and Google (GOOG) (GOOGL) typically keep their models proprietary, Meta’s open-source strategy fosters innovation and collaboration, enabling other technology companies and developers to test and improve its models.
Moreover, Meta is a leader in AI model transparency. It has developed methodologies to make AI decision-making processes fully interpretable, addressing the “black box” problem in AI. By pioneering transparency and accountability, Meta is positioning itself as a responsible leader in the AI industry—a critical advantage as AI adoption expands into high-stakes fields such as healthcare and finance.
Meta’s rise in AI, though initially unexpected, is now firmly on the radar of technology investors. Consequently, it is unsurprising that the company is trading near all-time highs. However, what should it be trading at? To value the firm, I first estimate Meta’s full-year 2034 EBITDA at $278.65 billion. Assuming a conservative EV-to-EBITDA ratio of 12.3, reflecting slower growth expectations compared to recent years, Meta’s December 2034 enterprise value would be $3.43 trillion.
With a median weighted average cost of capital (WACC) of approximately 8.5% over the past decade, I then discount this forecasted enterprise value back to December 2024, arriving at an intrinsic value of $1.52 trillion. As Meta’s current enterprise value is $1.41 trillion, this implies a modest 7.6% margin of safety for investors.
Meta currently holds a Strong Buy consensus rating on Wall Street, with an average META price target of $662.62, implying 15.4% upside potential. This is based on 40 Buys, three Holds, and one Sell, further supporting my view that Meta is a viable investment option.
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I’m also highly bullish on Microsoft, which has a commanding presence in cloud-based AI, particularly through its Azure platform. It leads in traditional AI and generative AI adoption, boasting the highest number of new AI customers and generative AI users compared to peers AWS (AMZN) and Google. Microsoft’s leadership is reinforced by its partnership with OpenAI, which has enabled seamless integration of cutting-edge AI technologies into its cloud services.
Unlike Meta, Microsoft has a clear and direct monetization pathway for its AI capabilities. The company has integrated AI across its product suite, enhancing user experiences with tools like Microsoft 365 Copilot, which is now used by nearly 70% of Fortune 500 companies.
Microsoft also prioritizes ethical and transparent AI, which is crucial for its focus on high-impact sectors such as healthcare. Its advancements in multimodal medical imaging and AI-driven nursing workflow solutions are significantly improving patient care. Furthermore, Microsoft’s AI initiatives extend into finance, customer service, and defense, as seen through its collaboration with Palantir (PLTR) on AI solutions for Western defense.
To value Microsoft, I first estimate its December 2034 EBITDA at $616.8 billion. Applying a conservative EV-to-EBITDA multiple of 20.3—aligned with the midpoint of its 10-year median and five-year average—my forecast for Microsoft’s enterprise value by December 2034 is $12.52 trillion.
Furthermore, Microsoft’s WACC stands at 9.81%, with equity making up 97.64% and debt accounting for 2.36%. After discounting my December 2034 forecast back to December 2024, I calculate an intrinsic enterprise value of $4.91 trillion. Given Microsoft’s current enterprise value of $3.13 trillion, this represents a substantial 56.91% margin of safety for investors.
Microsoft also has a Strong Buy consensus rating on Wall Street, with an average MSFT price target of $496.92, implying 17.35% upside potential. This rating is supported by 26 Buys, three Holds, and no Sells, reinforcing my thesis that Microsoft is an attractive investment opportunity.
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While both Meta and Microsoft are poised for substantial long-term growth driven by their strategic positions in AI, Microsoft offers the better investment opportunity today due to its superior valuation and monetization strategy. Even if Meta succeeds in developing the most advanced AI models, its ability to monetize these capabilities may be more challenging compared to Microsoft’s established pathways. Given the security and stability that Microsoft provides, I favor buying its stock while holding off on Meta for now.
