Meta surged almost 9% on Wednesday night, although it gave back half of the gains last night, following reports it’s exploring a cloud computing business that would sell excess AI computing capacity and access to its AI models, potentially creating a new competitor to Amazon Web Services, Microsoft Azure and Google Cloud. The move could help monetise Meta’s enormous AI infrastructure investment, although the company is yet to confirm the plans and questions remain over how much spare capacity it can realistically offer.
The news rattled the broader AI infrastructure trade, with neocloud provider IREN, which is held in the International Equities Portfolio down ~10%, while CoreWeave and Chinese chip stocks also fell on concerns that Meta’s entry could signal an oversupply of AI computing capacity. While some analysts see a lucrative new revenue stream for Meta, others argue contractual constraints and intensifying competition may limit the opportunity in the near term.
There is a lot of talk about high valuations in Tech, but it’s not the case in some stocks within the sector. Meta is now trading on ~14x earnings, around 1 standard deviation ‘cheap’ against a solid outlook for earnings growth.
- We like the risk/reward towards META, following its 35% correction, as it starts to consider monetising its AI spend.
MM is bullish towards META around US$580
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