Meta Launches Cloud Computing Business, Shares Surge 9%
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 9 hours ago
0mins
Source: Fool
- Cloud Computing Launch: Meta announced it will start leasing surplus computing power to customers, resulting in a 9% share price increase on July 1, aligning with CEO Mark Zuckerberg's earlier comments about selling excess capacity at a premium, thus opening new revenue streams for the company.
- AI Model Utilization: The large language models developed by Meta are primarily used internally to optimize its content recommendation engine, helping keep users engaged longer while also assisting advertisers in better targeting and converting customers, enhancing advertising effectiveness.
- Capital Expenditure Plans: Meta plans to spend up to $145 billion on capital expenditures this year, mainly related to AI infrastructure; the launch of the cloud computing business will allow flexible allocation of computing capacity between itself and customers, alleviating investor concerns about high spending.
- Competitive Market Position: By offering both cloud computing capacity and AI models, Meta will strengthen its competitive edge against Amazon, Microsoft, and Alphabet, the world's three largest cloud computing providers, further solidifying its market position in the tech industry.
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Analyst Views on META
Wall Street analysts forecast META stock price to rise
44 Analyst Rating
37 Buy
6 Hold
1 Sell
Strong Buy
Current: 600.290
Low
655.15
Averages
824.71
High
1117
Current: 600.290
Low
655.15
Averages
824.71
High
1117
About META
Meta Platforms, Inc. is building human connections, powered by artificial intelligence and immersive technologies. The Company's products enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality (VR) and mixed reality (MR) headsets, augmented reality (AR), and wearables. It also helps people discover and learn about what is going on in the world around them, enabling people to share their experiences, ideas, photos, videos, and other content with audiences ranging from their closest family members and friends to the public at large. The Company's segments include Family of Apps (FoA) and Reality Labs (RL). FoA segment includes Facebook, Instagram, Messenger, WhatsApp and Threads. RL segment includes its virtual, augmented, and mixed reality related consumer hardware, software and content. Its product offerings in VR include its Meta Quest devices, as well as software and content available through the Meta Horizon Store.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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See More
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- Investment Risk Emerges: Meta's spending on AI has reached tens of billions of dollars, and while CEO Mark Zuckerberg suggests selling excess computing power, this indicates that the company's aggressive investments may not yield expected returns, increasing the risk of future stock price declines.
- New Cloud Business Plans: Meta's intention to establish a new cloud business to sell excess AI computing capacity not only reflects a reassessment of its AI capabilities but also serves as a direct response to its excessive spending during the pandemic, heightening investor concerns.
- Lack of Market Confidence: Meta's Reality Labs division continues to incur billions in losses each quarter, and the failure of its metaverse investments to deliver anticipated returns raises doubts about its future spending strategy, potentially leading to further stock price declines.
- Stock Volatility Risk: With Meta's stock already down 9% this year, heightened investor worries about overspending on AI could lead to even greater downward pressure on the stock price, reflecting a lack of confidence in the company's financial health.
See More
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- AI Infrastructure Expansion: Meta Platforms has aggressively built AI infrastructure over the past few years, particularly for training its Llama models, with capital expenditures expected to exceed $145 billion in 2026, indicating the company's ongoing investment and growth potential in the AI sector.
- New Revenue Stream: Meta may create a new revenue stream by renting out its excess computing capacity, a strategy similar to SpaceX's successful model, which could generate over $2 billion in monthly revenue, highlighting the profitability potential of this market.
- User Growth Challenges: Despite attracting over 3.5 billion users daily across its social media apps, Meta is addressing stagnant advertising growth by enhancing user engagement through AI, which helps increase ad revenue and mitigates growth stagnation in its advertising business.
- Attractive Market Valuation: With a current P/E ratio of 21.2, which is 25% lower than its 10-year average, Meta's stock appears undervalued, suggesting that investors may consider long-term investment despite uncertainties surrounding its potential cloud business.
See More
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- Micron's Growth Potential: Micron Technology (MU) has seen its stock triple this year, and with the memory chip market expected to remain tight through 2027, the company is poised for unprecedented growth, presenting significant return opportunities.
- Nebius Revenue Surge: Nebius (NBIS) reported a staggering 684% revenue growth in Q1, with analysts projecting 459% growth in Q2, making it an opportune time to invest as the company rapidly expands into an AI computing giant.
- Nvidia's Market Dominance: Nvidia (NVDA) remains the top AI stock pick since 2023, despite a 17% drop from its all-time highs; its GPUs are still essential to the industry, indicating substantial future growth potential.
- Investment Opportunities in Microsoft and Meta: Microsoft (MSFT) boasts a 27% stake in OpenAI and an annual recurring revenue of $37 billion, showcasing strong growth potential, while Meta (META) trades at an attractive 18 times forward earnings, positioning it as a potential top AI stock in the latter half of 2026.
See More
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- Nebius Cloud Computing Surge: Nebius (NASDAQ: NBIS) reported a staggering 684% revenue growth in Q1, with 459% anticipated in Q2, and projected growth of 544% and 234% for 2026 and 2027 respectively, highlighting its rapid expansion in AI-first cloud computing.
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See More
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- Legal Challenge Fails: Apple lost its challenge in the Luxembourg General Court against the EU Digital Markets Act, which designates its App Store and iOS as gatekeepers, requiring compliance with obligations that promote competition and risking fines of up to 10% of global annual revenue.
- Privacy Protection Concerns: Apple reiterated its criticism of the DMA, arguing that its mandates exceed lawful and proportional limits, potentially eroding decades of privacy and security protections, which could harm its reputation in the European market and expose users to new risks.
- Appeal Possibility: Apple has the option to appeal to the Court of Justice of the European Union on legal matters, although the court clarified that the classification of iMessage does not impose binding legal effects on Apple's status, as it is not listed under DMA obligations.
- Strengthened Competition Regulation: This ruling bolsters the position of EU antitrust regulators, aiming to create more space for rivals and enhance consumer choice in Europe, which may have profound implications for Apple's market strategy and future business models.
See More
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- Massive Investment Plan: Meta plans to invest up to $145 billion in AI by 2026, a staggering amount that raises concerns on Wall Street regarding the potential returns, which could impact shareholder confidence.
- Selling Excess Computing Power: Meta is considering selling its excess computing capacity, similar to Amazon and SpaceX, which could create a new revenue stream to partially offset the high costs associated with AI development.
- Stock Performance Struggles: Over the past year, Meta's stock has declined by more than 15%, and it is down 7% in 2026 so far, making the company's current valuation metrics appear attractive with a forward P/E ratio below 20.
- Cautiously Optimistic Outlook: While this strategy may alleviate some investor concerns, Meta must still stand out in a competitive market, and successfully selling computing power to establish a strong revenue engine will be crucial for its future.
See More
