Key Points
When you hear about the big four artificial intelligence (AI) hyperscalers, it’s usually in reference to Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), and Amazon (NASDAQ: AMZN). These four companies are the ones making hundreds of billions of dollars in capital expenditures, mostly for data centers to build out their AI compute abilities. Not all of them have the same resources to throw at the AI arms race, and some aren’t using the computing power for themselves, either.
All four companies also recently announced their earnings, so which of them is the best buy? Let’s dive in.
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Meta wins the revenue growth competition
Starting with the top line, Meta’s revenue growth was the fastest of this group — a title that it has held for a long time.
META Revenue (Quarterly YoY Growth) data by YCharts
Meta is in a league of its own, and this acceleration comes from integrating AI technologies into its legacy ad business. In second place was Alphabet, which is also using AI to improve ads. However, what really drove Google’s growth was its cloud computing segment, Google Cloud. Google Cloud’s revenue spiked 63% this quarter, thanks to booming cloud and Tensor Processing Unit (GPU) sales. Microsoft and Amazon aren’t terribly far behind Alphabet, but they are heavily leaning on the growth that their cloud computing segments provided to boost their growth rates.
However, another item we should look at is operating income growth. Companies like Amazon have a large chunk of sales in commerce, which is a low-margin, low-growth business unit.
META Operating Income (Quarterly YoY Growth) data by YCharts
From this standpoint, it’s really a three-way tie for first place, with Microsoft taking fourth place by a wide margin. I think this shows that Microsoft is still doing OK (17% revenue growth and 20% operating profit growth is still incredible), but the other three are doing much better.
One stock stands out as a bargain
With all of the hefty spending that each company is doing, valuing them on their earnings can be a bit misleading.
As a result, I think it’s best to use cash flows to value the companies.
All four companies are using most of their available cash flows to build out data centers. During heavy capital investment cycles, cash flow from operations is a smarter metric to value a stock with because it excludes capital expenditures and only focuses on how much cash a business generates.
From this standpoint, some stocks are getting quite pricey, while others are incredibly cheap.
META Price to CFO Per Share (TTM) data by YCharts
Meta once again wins this competition by a wide margin, trading at less than 13 times cash from operations. Microsoft and Amazon are solidly in the middle, while Alphabet is getting quite pricey. So, of these four, I think you can draw these conclusions:
- Meta is both rapidly growing and cheap. If you’re a believer in its AI strategy, it is the bargain of the bunch.
- Alphabet is a strong business, but its recent rally has made its stock quite pricey.
- Amazon is a nice trade-off between a reasonable price and growth.
- Microsoft is the slowest growing, and is valued at just a slightly cheaper level than Amazon. However, it used to trade for far higher and could eventually see a rally.
Meta looks like the top buy here, and I think investors should take advantage before one of its AI investments pays off and the stock soars.
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Keithen Drury has positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
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