Key Points
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Meta stock got a boost in early July when Bloomberg reported it might sell cloud computing capacity to other AI companies.
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On Friday, CNBC reports that Anthropic might become a $10 billion customer of Meta.
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Meta Platforms (NASDAQ: META) stock rode the roller coaster last week, soaring as high as $686 per share intraday on Wednesday before giving back all its gains — and that’s OK. Closing the week a penny above $646 per share, Meta has returned to prices last seen in April.
As a direct result of Meta stock’s rebound, CEO Mark Zuckerberg — who owns 13.5% of Meta stock according to data from S&P Global Market Intelligence — has become the fifth-richest person in the world. His estimated net wealth (by Bloomberg): $222 billion.
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What’s driving Meta stock higher?
This is quite the turnaround for Meta.
Shares of the social media company spent much of June in a profound slump until Zuckerberg announced, and Bloomberg reported, that Meta was considering pulling back on its artificial intelligence (AI) initiatives and pivoting toward cloud computing — selling its computing capacity to other AI companies rather than trying to become an AI leader itself.
That may be the right decision.
Wall Street analysts estimate Meta could spend as much as $140 billion on capital investment this year, yet it has precious little to show for the investment. With Gemini, ChatGPT, and Claude to choose from, few AI users see a need for Meta’s AI. As a result, BMO analyst Brian Pitz recently called Meta “the least visible AI ROI story.”
But even if Meta can’t capitalize on its capital investments to build a great AI business, it may be able to service customers who can. Last week, Yahoo Finance posited that a pivot to selling computing power to other companies’ AI data centers could generate “billions of dollars” in annual revenue for Meta. On Friday, CNBC confirmed that the rumors may be true.
Meta is reportedly in “very preliminary talks to lease computing power from Meta.” And if these talks lead to a contract, it could be worth up to $10 billion to Meta.
How to value Meta stock
Just the prospect of this happening was enough to lift Mark Zuckerberg back into the top five rankings of the world’s wealthiest personages, trailing only Elon Musk, Larry Ellison, Sergey Brin, and Jeff Bezos (all of whom, by the way, are also involved in AI companies to one extent or another). But what does this mean for investors?
Priced at 24 times earnings after its share price surge, and expected to grow earnings at nearly 20% annually over the next five years, but paying only a meager 0.3% dividend yield, Meta stock isn’t obviously cheap anymore — but it’s not far from fairly priced.
Investors do need to keep an eye on spending — Meta’s heavy capital spending means its free cash flow currently lags reported net income by about 30%. But if Meta can keep spending in check and monetize its investment by selling computing capacity to other AI companies, Meta could be a stock worth owning.
Should you buy stock in Meta Platforms right now?
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Rich Smith has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
