New cloud business?
Last quarter, Meta spent $30 billion on capital expenditures, nearly doubling its capex year over year. For the full year, Meta expects to spend $130 billion to $145 billion on capital expenditures, mainly related to artificial intelligence. Some of this will be used to advance its advertising platform, but the majority will go toward frontier research and inference capacity for AI models.
Right now, Meta’s AI models do not see much external use, so it is already building up excess capacity in data centers that is not being utilized. Zuckerberg said that other AI companies have reached out to Meta Platforms to buy access to its compute capacity at a premium over the purchase price, although the exact financial details of the arrangement are unclear. However, if we compare it to recent deals signed by Space Exploration Technologies that are set to generate tens of billions in annual revenue, Meta could quickly grow this AI cloud business if it wants to turn on the spigot.
The risk arises because Meta is already struggling to identify internal use cases for its AI infrastructure. It could sell these services to third parties today in a similar move to SpaceX, CoreWeave, or Nebius Group, but eventually, the AI software providers are going to stick with the best-in-class hyperscalers Amazon Web Services that can provide a comprehensive cloud service above just reselling compute, such as databases and other software. Meta is years away from doing this, if it even wants to.
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NASDAQ: META
Meta Platforms
Today’s Change
(-0.86%) $-5.12
Current Price
$589.85
Key Data Points
Market Cap
$1.5TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$589.29 – $601.86
52wk Range
$520.26 – $790.80
Volume
8.8M
Avg Vol
18.1M
Gross Margin
81.75%
Dividend Yield
0.36%
Solid core operations
What all this means is that if Meta is already thinking of selling excess compute capacity to third parties, it is a bearish signal for the company. This means it cannot find ways to directly monetize the AI services it has spent tens of billions developing. According to third-party estimates, Meta’s AI chatbots have just a sliver of market , losing out to competitors Alphabet‘s Gemini, OpenAI’s ChatGPT, and Anthropic’s Claude.
I believe Wall Street is right to be bearish on all the investments Meta is making in AI. However, it still has a phenomenal advertising business across Facebook, Instagram, and WhatsApp that is seeing accelerating growth due to improvements in targeting technologies. Last quarter, Meta’s revenue grew 28% year over year to $61 billion, mainly driven by advertising growth. It couldn’t outpace expense growth on AI and Reality Labs (Meta’s wearables division is losing billions every quarter), with operating margin falling from 43% a year ago to 31% in Q2 2026, but it can help stabilize the ship as more money is spent every quarter on AI capital expenditures.
Data by YCharts.
My honest take on Meta stock
For the first time in a long while, Meta’s operating earnings fell last quarter. Over the last 12 months, earnings before interest and taxes (EBIT) were $87 billion and are ly to continue falling over the next few years if capital expenditures continue to grow without an AI business model in place. Why? Because there will be massive amounts of depreciation flowing through to Meta’s income statement. Advertising revenue is growing quickly, but it is already unable to keep up with these rising expenses.
The stock trades at a discount to many big technology peers, with a price-to-earnings ratio (P/E) of 22. However, Meta’s earnings are ly to shrink in the years ahead unless it reverses these aggressive AI investments or finds a way to monetize said investments, generating tens of billions in revenue overnight. I have my doubts that this will happen, which is why I don’t think Meta stock is a buy, even as it trades below $600.
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About the Author
Brett Schafer is a contributing Motley Fool stock market analyst covering consumer goods, financials, technology, and industrials. Brett is a self-taught investor and has hosted the Chit Chat Stocks podcast since 2018. He previously worked as a lab engineer for science laboratories. He holds a bachelor’s degree in mechanical engineering with minors in finance and mathematics from Washington State University. His lab work on Major League Baseball’s juiced ball problem was featured in The Wall Street Journal and other national outlets.
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NASDAQ: META
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(-0.86%)-$5.12
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