Why I Don't Think Meta's AI Strategy Will Be Successful
Key Points
Users will need to trust AI agents in order for them to truly be useful.
Meta has a poor track record for data safety and protection, which may dissuade people from relying on its AI.
The stock's valuation is a bit rich, and it should arguably trade at a discount given its costly and risky ventures.
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News of Meta Platforms (NASDAQ:META) launching a personal artificial intelligence (AI) agent called Muse last month gave the struggling stock some much-needed life. It's now in positive territory for the year, up around 12% since January. It's been a tremendous turnaround story for the company, as it's made investors believers of Meta's AI strategy.
But I don't think it'll last. While the launch of a personal AI assistant may unlock new opportunities and drive more growth, since there are paid plans as well, here's why I don't think it'll be successful.
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AI agents need to be trusted, and that's not Meta's strength
AI agents could potentially add a lot of efficiency to someone's life. They could respond to emails, book dinners, make travel plans, and even shop online for them. But each one of those examples also requires the user to allow the agent to act on their behalf, and thus, to trust it to make sound decisions. It may also involve allowing them to access sensitive information.
Meta, unfortunately, doesn't have the best track record for protecting user privacy. It's faced numerous privacy-related lawsuits and recently agreed to pay $18 billion to settle lawsuits that alleged its social media apps harmed children.
Given that there is a growing amount of competition in AI and there will be many AI agents available, I'm skeptical about just how much people will be willing to trust a service from Meta, given its track record. As concerns grow about the level of access that an AI can have, I think users will be less inclined to use an AI from a company such as Meta. While its AI agent may provide convenience for users who heavily use the company's social media apps, I don't think it'll be a big growth driver for the business.
Why I'd avoid Meta's stock
Meta's stock has been volatile over the past year, as even with its recent surge in value, it's still only up around 3% in the last 12 months. It's trading at a price-to-earnings (P/E) multiple of 28, which is a fair bit higher than the S&P 500 average of 23. The tech stock is by no means a steal of a deal.
Plus, when factoring in the risks of its AI strategy not paying off plus the money pit that is its metaverse segment, it quickly becomes apparent why the stock should arguably trade at a discount rather than a premium. This is a stock that could be vulnerable to a sizable decline if there's a downturn in the markets.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
