META vs. MSFT: Which AI Leader Offers Better Long-Term Returns?
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.
Meta: Investing in AI
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 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.
Microsoft: Leading in Cloud-Based AI
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 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 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.
