The Social Media AI Arms Race

SPEAKER_1 (0:01)

All right, let's go deep on social media, the landscape, our tech spotlights. So much to discuss here. Joining me for this, TJ Klein, Associate Portfolio Manager, Gradient Investments. So glad you're with us because we think about Meta's settlement. Could have been so much worse.

Let's start with that, right? And there was a little bit of a relief after the settlement came, but there's a lot riding on this. What were your thoughts and takeaways?

TJ Klein (0:29)

Yeah, my thoughts right away were I noticed that Meta had moved higher on the day while some of the other social media stocks had moved down. So I was paying attention to that divergence. And that has continued as well here as we moved into a few weeks post the settlement announcement there. So I think that the stock price reaction is something to pay attention to here moving forward between these different stocks.

SPEAKER_1 (0:52)

I mean, we also had Mark Zuckerberg really urging the others like TikTok, YouTube, Snap to get along, get with this program and follow suit. Where do we stand on something like that and why does it matter?

TJ Klein (1:05)

Yeah, I think that that is something that we need to see them follow suit because I think it's going to be very tough to regulate when you have different regulations for different social media companies. So getting everybody under the same page and being consistent with that I think is something that we'll look into. And the California Attorney General did say that he was going to be looking to make some more changes industry-wide. So that will definitely be something to pay attention to as we move forward here.

SPEAKER_1 (1:32)

I mean, if they don't have comparable time limits and restrictions, it almost gives an unfair advantage to those other companies. And that might be another reason why we're trying to sort of lay the groundwork and have it be a fair for all type of environment, particularly when you're seeing some countries actually taking their kids right off of social media altogether.

TJ Klein (1:53)

Right. Yeah, that's a very good point. We've seen different regulations come from different territories, different states looking at doing different age restriction, time limits, certain night mode or school mode, so restrictions on certain times throughout the day.

I think a lot of people have a lot of different ideas and I think we're kind of narrowing the band on what's going to be agreed to, but there's still some things to be undecided at this time.

SPEAKER_1 (2:19)

So there are other parts of the story. You talked about Meta's ad business and personalized feeds. Tell me about that and why that's important here.

TJ Klein (2:30)

Yeah, I think that it's good for Meta. They have a very diversified advertising base and that they have the personalized feeds, so you get more targeted advertisements there. But I think Meta also has product enhancements that are going on. That is a tailwind for them. Their Mews Spark AI model is very competitive, and they just released their Mews AI agent as well too, which the stock price had a nice 5-6 percent leg higher on that, and released announcement date as well too. So that's another couple of tailwinds for Meta here.

SPEAKER_1 (3:05)

I do want to talk about the stock situation of these names, but as we talk about Meta, I just wanted to talk about the advertising landscape. Of course, it becomes fragmented because there are so many places for advertisers to advertise, but the ad business overall for Meta versus the other social media stocks? Yeah.

TJ Klein (3:26)

In that case, I do continue to like Meta versus other social media stocks. You look at some like Snapchat or Pinterest. So they have good users, good daily active users, monthly active users, but the base just isn't there at Meta scale. I think that the release of some of these new AI products is going to help them keep users engaged that are already on the platform and help gain more users.

SPEAKER_1 (3:53)

One analyst actually is saying, Meta's Muse, the monetization is somewhat limited in the near term. I guess we have to wait and see for this AI agent and what Muse actually brings today. For the very first time, I was on Instagram and said, introducing you to Muse and a character came up. Of course, because I'm in this industry, I knew what it was, but it leaves you saying, okay, what's this, what now? How do I use this? Why does it matter?

So that's where we stand. I mean, to transition that into actual money may take some time. That being said, when you looked at some of the others, for example, you thought Snap was a bit uncertain. Why is that?