<div id="readability-page-1">Meta Platforms (META 1.05%) just hit an all-time high, surpassing $1.5 trillion in market value for the first time. The stock is up 66% in 2024 and 387% since the start of 2023. Meta is now the sixth-most-valuable U.S. company -- immediately trailing Amazon and Alphabet, which have market caps of $1.96 trillion and $2.06 trillion, respectively. Here's why Meta could be worth more than either of those companies by 2026, and why the growth stock is still worth buying now despite its epic run-up. <div><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy83OTMxNTIvZ2V0dHlpbWFnZXMtMTQwMjgxNDA4OC0xMjAweDY3NC1jMTRiZmRhLmpwZyZ3PTcwMA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="393" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy83OTMxNTIvZ2V0dHlpbWFnZXMtMTQwMjgxNDA4OC0xMjAweDY3NC1jMTRiZmRhLmpwZyZ3PTcwMA"/>Image source: Getty Images. </div> <h2>Meta's runway</h2> At its core, investing is all about finding companies that can make more money in the future than they do today. Some don't need to grow by much because they already make a lot, so they reward investors with dividends and buybacks. Others aren't profitable but are chock-full of potential. Mature megacap tech-focused companies like Meta, Amazon, and Alphabet are industry leaders that blend high cash flows with growth potential. Meta has the most straightforward path toward future earnings increases. Meta-owned Instagram combines the best elements of modern entertainment and social media to create a high-margin cash cow. Unlike Alphabet-owned YouTube, Instagram is a mobile-first application. It thrives when folks create and share content and spend more time on the app. The advent of Instagram Stories, Instagram Live, and Instagram Reels has transformed the company from a static, image-based platform to a real-time video-based platform. Engagement is through the roof as users can scroll through a tailor-made feed that shows short clips based on their preferences. The platform has turned into a dream destination for advertisers that can use targeted marketing with transactions processed quickly through mobile payment tools. Besides targeted content, advertisers gain access to metrics that can help justify marketing expenses. Like YouTube, the beauty of Instagram is that Meta doesn't have to spend money on content creation because its users do that for it. This is a big advantage compared to a media titan like Netflix, which must keep subscribers engaged with expensive and engaging content. <h2>A winner in the age of AI</h2> Meta is an excellent example of a company benefiting from artificial intelligence (AI). It is investing in AI to help connect advertisers with consumers. While no one likes ads, relevant ones can be more tolerable and increase engagement. AI is allowing Meta to improve content recommendations, which enhances the quality of its apps. The more time users spend on its apps, the more ads they will see. In sum, AI is improving Meta's entertainment for users and its effectiveness for advertisers -- game-changers for the company. By comparison, AI has been seen as more of a mixed bag for Alphabet. Rival tools like SearchGPT and ChatGPT are challenging the entrenched position in search for the company's Google. It has implemented improvements, such as AI Overview, which provides a summarized answer to a query rather than relying solely on top links. However, whether Google can hold its own against these rival tools remains to be seen. Cloud service providers like Amazon Web Services (AWS) and Google Cloud stand to benefit from AI-driven demand for their services. But Google Cloud is a distant third behind AWS and Microsoft Azure in market share. And Amazon's business outside of AWS is good but not great when it comes to growth and profitability -- making Meta arguably the best AI play of the three. <h2>Setting the stage for a valuation expansion</h2> Perhaps the best reason that Meta Platforms could continue outpacing Amazon, and Alphabet is its valuation. As you can see in the following chart, Meta has the second-lowest forward price-to-earnings ratio (P/E) of the &#34;Magnificent Seven&#34; behind only Alphabet, but it has the highest free cash flow (FCF) yield. <img src="https://imageproxy.pbkrs.com/https://media.ycharts.com/charts/66e5d6e67501999b6f33d5e7a72d30e6.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="720" height="743" original-src="https://imageproxy.pbkrs.com/https://media.ycharts.com/charts/66e5d6e67501999b6f33d5e7a72d30e6.png"/> TSLA PE ratio (forward); data by YCharts. The FCF yield is simply FCF per share divided by the share price, where the higher the FCF yield, the more free cash flow the business generates relative to its value. Despite increasing nearly 400% since the start of 2023, Meta is still a relatively inexpensive stock. It can look even cheaper if its earnings growth begins to outpace its stock price. But it could also undergo a valuation expansion that takes its stock price to new heights. A valuation expansion, or multiple expansion, is when the market assigns a higher earnings multiple to a company because the quality of the earnings has improved or because investors are optimistic that earnings growth is about to accelerate. Apple is an excellent example of this phenomenon. Its 10-year median P/E is just 19.8, but its current P/E is 34.5. It's arguably a better business than it was 10 years ago, largely due to continued iPhone and product improvements and its growing high-margin services business. Services have improved Apple's vertical integration, customer retention, and engagement, and they have provided a recurring revenue stream so it is less dependent on the cyclical product-upgrade cycle. I wouldn't be surprised if Meta eventually deserves a 30 to 40 P/E. The company's earnings and cash flow are phenomenal but could be even higher if it weren't investing in its Reality Labs division. That segment booked an $8.33 billion operating loss for the six months ended June 30. Take that loss out, and the company would be considerably more profitable and look even cheaper from an earnings standpoint. However, there's also the possibility that Reality Labs could eventually contribute to the bottom line rather than dragging it down. The segment is responsible for the company's investments in the metaverse, virtual reality headsets, Ray-Ban Meta Smart Glasses, and more. Meta can afford its massive research and development budget, buyback program, and newly implemented dividend because of the strength of Instagram, Facebook, and WhatsApp. Investors tolerate Reality Labs' losses because the business is doing well regardless, but the growth could go parabolic if that segment has a breakthrough. And with the market seemingly pricing in essentially no value from Reality Labs right now, there's a ton of upside potential. <h2>Room to run</h2> Analysts' consensus estimate for Meta's 2024 earnings is $21.29 per share, followed by $24.21 in 2025. With the company's capital-intensive spending on AI chips likely to weigh on 2025 earnings, and buybacks reducing the share count, I would expect Meta's earnings-per-share (EPS) growth to be higher in 2026. If EPS grows to say $28, or a little over 15% off the 2025 estimate, it could easily be a $1,000 stock with a P/E of 35 or so. Long story short, Meta has a good chance of doubling in value in the next three to five years, while it's not as certain for tech rivals Amazon or Alphabet. </div>

Prediction: Meta Platforms Will Be Worth More Than Alphabet and Amazon by 2026