Meta Platforms or Alphabet ? A veteran tech and media analyst is going against the market in standing by his favorite between the two digital advertising and artificial intelligence powerhouses. The news Investors have a “clear preference” for social media giant Meta, MoffettNathanson Research wrote in a note to clients Tuesday. It’s no wonder. Just look at this year’s stock performance: Shares of the Facebook and Instagram company gained more than 65% in 2024 — more than double the Google-parent’s year-to-date advance. However, Michael Nathanson — who spent 15 years on Wall Street before teaming up with industry veteran Craig Moffett to found their firm — told clients that he favors Alphabet based on valuation. He pointed out that Alphabet’s underperformance has led to a “rare instance” in which its “forward earnings multiple is below Meta’s for the first extended time since 2019.” “Based on our estimates, the core assets of Meta (ex. Reality Labs) and Alphabet (ex. Other Bets) trade at nearly 2025 P/E ratios of slightly below 18X,” Nathanson wrote. “Pulling back, given the fact that these multiples are almost 20% below the 2025 S & P 500 multiple, we also think the market continues to undervalue the long-term core earnings power of these two companies.” Reality Labs is the Meta division that houses the company’s virtual and augmented reality goggles and connected glasses as well as its metaverse pursuits. ” Other Bets ” is the Alphabet unit outside of Google that includes the company’s Waymo self-driving project and Verily, which uses analytics to improve health care. Both of these divisions have been losing billions upon billions of dollars over the years. While keeping buy ratings on both stocks, Nathanson raised his firm’s price targets on Alphabet and Meta. In support of giving Alphabet the edge, he sees faster revenue growth from Meta but at a higher cost. On the other hand, he argued the Google parent should benefit from balancing revenue growth and expense growth to safeguard operating margins. Big picture Wall Street’s preference for Meta over Alphabet has a two primary causes. For one, Meta has consistently delivered revenue and earnings ahead of consensus, rooted in stron advertising revenue from AI advancements. Meta has seen huge success with its advertising tool, Advantage+, which helps businesses personalize ads. It’s seeing a higher return on ad spending with 1 million advertisers using the company’s generative AI features. The second is concerns about the Google parent’s dominance in search and advertising due to regulatory headwinds from government antitrust cases. To be sure, Nathanson did write in the note: “Due to our current preference for Alphabet over Meta, the relative outperformance of Meta does make us wonder if we are favoring the wrong horse.” Bottom line Jim Cramer sees merit in MoffettNathanson’s buy calls on Alphabet and Meta and believes it is just about “time to buy both” of these AI and advertising leaders. While both megacaps are pouring investments into their AI infrastructure buildouts, we believe this short-term spending will significantly pay off in the long term. On an earnings valuation basis, Alphabet is cheaper than Meta. It’s worth noting that we trimmed both positions on Sept. 25 , about a week after each had huge post-Federal Reserve interest rate cut rallies. Tech stocks have come off the boil recently after rising on Trump Donald Trump’s election win and the Fed’s November rate cut that came one day later. For the Club, though, we’re waiting for lower levels before considering adding more shares of Alphabet and Meta, as signified by our 2 rating . (Jim Cramer’s Charitable Trust is long GOOGL, META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Meta CEO Mark Zuckerberg (L) and Alphabet CEO Sundar Pichai.
REUTERS
