Meta said that it’s evaluating various approaches for its cloud business.
- Meta had previously indicated that it plans to use its massive infrastructure investments as a potential revenue stream.
- CEO Mark Zuckerberg said Meta is evaluating what percentage of compute capacity to open up to third party customers.
- Meta’s third-quarter forecast came in below expectations, causing the stock to plummet overnight.
Meta Platforms CEO Mark Zuckerberg has said that the company is evaluating how it would sell cloud capacity to external customers, suggesting that Meta would move slowly and deliberately for the new business venture.
Meta had previously indicated that it plans to use its massive infrastructure investments as a potential revenue stream, including selling compute capacity to third parties, and those plans are widely watched by investors and analysts.
“We’re getting a lot of offers for compute at a significant premium over what we paid for it,” Zuckerberg said on the post-earnings call on Wednesday.
“The question in thinking about this is we believe that there will continue to be a significantly higher margin on selling intelligence rather than selling compute directly… It would be foolish to basically just sell all of the compute and take a short-term profit,” he said.
Zuckerberg said he sees a large business opportunity for selling AI and software products to enterprise clients, and that the broader goal is to monetize “intelligence.”
“We expect that remaining nimble about these opportunities will help us fund our build-out more efficiently while preserving our strategic flexibility to have the compute when we need it and provide us multiple pathways to generate returns on expected on invested capital,” Meta CFO Susan Li said.
META Guidance Misses, AI Cloud Timeline Remains Unclear
The comments dampened sentiment, as some investors and analysts had been expecting a bigger push into the cloud business, especially at a time when demand continues to surge.
Although Meta stock dipped 7% in overnight trading mainly due to a weaker-than-expected forecast, management comments around the cloud business added to the drag, according to analysts.
“The drift in the stock was tied to investors less encouraged about the timing of the Cloud business. That is a large growth lever that we will have to wait for,” Deepwater Asset Management’s co-founder Gene Munster said in an X post.
“The other new products, consumer personalized AI agents will be announced soon, the only problem is investors don’t believe they will be impactful in the next year.”
Meta stock declined for nine consecutive sessions till Wednesday’s close, cumulatively shedding 14%.
META’s Q2 Recap
Meta said it expects third-quarter revenue of between $61 billion and $64 billion, which is below analysts’ expectation of $63.15 billion. Earnings per share of $6.18 fell short of the $7.4 anticipated by analysts.
Meta narrowed its full-year capital expenditure outlook to between $130 billion and $145 billion, raising the bottom end of its previous forecast.
The company reported adjusted profit of $6.18 per share on revenue of $60.80 billion for the second quarter, beating analysts’ estimates on both counts.
Retail View On META
On Stocktwits, the retail sentiment for META shifted to ‘neutral’ as of late Wednesday, from ‘bearish’ the previous day.
“$META Apparently to get the cloud going they are going to drop 2x more Capex. The company is screwed. This goes to $450 or lower tomorrow,” a trader said, forecasting an over 20% dip on Thursday.
Meta stock has lost 11% year-to-date.
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