This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Tesla (NASDAQ: TSLA) is a leading manufacturer of electric vehicles (EVs), whereas Meta Platforms (NASDAQ: META) is home to social networks like Facebook, Instagram, and WhatsApp. In other words, they are two completely different companies.
But they have one important thing in common: They are betting big on artificial intelligence (AI).
Tesla stock and Meta stock both soared by more than 60% in 2024, ending the year near record highs. But 2025 is here, and it's time for investors to look forward, so which one is the better buy now? I think the answer is clear.
The case for Tesla
Tesla is one of the most exciting stories in the AI industry, and its stock has no shortage of bullish price targets from Wall Street analysts. Most of the optimism stems from the company's full self-driving (FSD) software, which owners of its passenger EVs can already use in beta mode.
Tesla CEO Elon Musk believes autonomy is the future of the automotive industry. The company unveiled its Cybercab robotaxi in October, which doesn't have pedals or even a steering wheel, because FSD will handle the entire driving process. The company plans to build a ride-hailing network where the Cybercab can autonomously haul passengers and earn revenue around the clock. Since it won't need a human driver, this revenue stream should have a very high profit margin.
Moreover, consumers will be able to buy the Cybercab for personal use, or they can purchase a fleet of them and operate a ride-hailing service of their own using Tesla's network. Simply put, this new product platform unlocks several new revenue streams for the company, which is why analyst Dan Ives from Wedbush Securities believes it could be a $1 trillion opportunity.
But Tesla faces a few short-term problems. First, it delivered 1.79 million passenger EVs during 2024, which was a drop of 1.1% compared to 2023. EV sales still account for almost 80% of the company's total revenue, so it can't afford for this business to be shrinking.
That brings me to the second problem -- the Cybercab isn't scheduled for mass production until 2026, which means Tesla's passenger EV sales need to impress investors for at least another year.
Moreover, the company's FSD software doesn't have regulatory approval for unsupervised use anywhere in the U.S. right now. Investors are speculating that Tesla will face a friendlier regulatory environment under the Trump administration, which could fast-track the approval process, especially since Musk was a major donor to the incoming president's election campaign. Musk hopes FSD will be fully approved in at least California and Texas this year.
Still, Tesla stock trades at an extremely high valuation (more on this later), based entirely on products that aren't even available yet. That poses a significant risk to investors who buy it now.
But here's the upshot: Cathie Wood's Ark Investment Management thinks Tesla stock could soar 530% to reach $2,600 by 2029 if the Cybercab and FSD are successful, so the payoff could be substantial for investors with a high-enough risk tolerance to buy it today.
The case for Meta Platforms
Over 98% of Meta's revenue comes from selling advertising slots to businesses on its social networks, like Facebook and Instagram. The formula for success is quite simple: The longer each user spends browsing those platforms each day, the more ads they see, and the more revenue Meta pulls in.
Meta spent the last couple of years building AI into its recommendation engine, which learns what content each user likes to see, and shows them more of it to keep them online a little longer. In the third quarter of 2024 (ended Sept. 30), CEO Mark Zuckerberg said AI-powered recommendations drove an 8% increase in the amount of time users spent on Facebook for the year to date, and a 6% increase for Instagram.
But that's only the tip of Meta's growing AI strategy. The company also launched an AI chatbot called Meta AI in 2023, and it has already amassed 500 million monthly active users. It's embedded in each of the company's apps, where users can ask it questions on almost any topic, or prompt it to generate images.
Meta AI is free to use, but I predict businesses will eventually pay money to embed product links into its responses when users ask it a relevant question, which will unlock a new revenue stream for Meta.
Meta AI is powered by the company's family of large language models (LLMs) called Llama. Unlike models from leading AI start-ups like OpenAI, Llama is open source, which allows Meta to crowdsource bug detection and improvements from an entire community of developers. With over 600 million downloads, Llama is the most popular family of open-source models in the world.
Meta will report its official financial results for 2024 on Jan. 29, and the company is likely to tell investors it spent around $40 billion building data centre infrastructure for the year to further its AI ambitions. The company plans to launch Llama 4 this year, which Zuckerberg thinks could be the most advanced LLM in the world. It will pave the way for new AI features for Meta's social networks, and new opportunities to generate revenue.
Turning to 2025, Wall Street's consensus estimate (provided by Yahoo!) suggests Meta could deliver a record $186 billion in revenue, and $25.38 in earnings per share. Based on those figures, its stock looks very attractive right now.
The verdict
In my view, this choice comes down to valuation. As I touched on, Tesla stock is pricey right now -- it trades at an eye-watering price-to-earnings (P/E) ratio of 108, which makes it three times more expensive than the 32.1 P/E ratio of the Nasdaq-100.
Meta stock, on the other hand, trades at a very enticing P/E ratio of just 29.1.
TSLA PE Ratio data by YCharts
We don't actually know if Tesla's business will grow in 2025. Elon Musk says it will -- he thinks passenger EV deliveries could grow by as much as 30% -- but it's a "show me" story, given the company's 2024 results. Plus, I can't recommend making a large bet on Tesla stock at this price based on what might happen with the Cybercab and FSD in 2026.
Meta has a better opportunity to financially benefit from AI in 2025, because incremental improvements in its recommendation engine alone could immediately drive more advertising revenue. Combined with its attractive valuation, I think it's a much safer stock to buy for this year.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
