Meta Platforms Could Open Up a Massive New Revenue Stream

Meta Platforms (NASDAQ:META) is typically considered one of the four big hyperscalers in the tech sector. These are companies that own and operate massive cloud computing and data storage businesses, and in the AI era, they’re all spending massive amounts on data centers and AI infrastructure.

The other three major hyperscalers are Amazon, Microsoft, and Alphabet. Those three companies also represent the biggest cloud computing companies in the world, an industry that is now generating hundreds of billions of dollars in revenue.

Meta, despite planning to spend more than $100 billion in capital expenditures this year, does not have its own cloud computing business. However, that could change.

Image source: The Motley Fool.

Is the Meta Cloud coming?

At Meta’s annual shareholders meeting, Zuckerberg was asked about the company potentially launching its own cloud computing services and responded, “It’s definitely on the table.”

Zuckerberg said the company has already been approached several times by outside companies asking for cloud computing capacity and services.

Right now, a cloud computing service seems to be a backup plan for Meta as Zuckerberg said, “We haven’t done that yet because we think that we have a use for the compute,” as he’s made achieving superintelligence a top goal. However, he sees launching a cloud service as a viable option if the company has too much capacity.

Why a Meta Cloud would be a smart move

While most of Meta’s big tech peers have diversified into other revenue streams, Meta still makes essentially all of its revenue from advertising. It’s built an incredible ad targeting engine, but its efforts to diversify thus far, including VR headsets, the metaverse, and other reality labs initiatives, have fallen flat.

Zuckerberg is motivated by pushing the technological envelope, but borrowing a page from one of its peers and launching a cloud business would make more sense. Amazon, Microsoft, and Alphabet are all reporting accelerating revenue growth in their cloud computing divisions and generating wide margins, as cloud infrastructure has proven to be a high-margin business once it’s established.

Neocloud companies like CoreWeave and Nebius have also reported triple-digit revenue growth, and other cloud companies like Oracle are seeing strong growth as well.

If Meta were to launch a cloud business, the timing couldn’t get much better than now. There’s a huge demand for cloud computing capacity. It would diversify its business, and it is one of the few companies that has the capacity to sell cloud computing services.

What it means for Meta stock

Meta has long traded at a discount to its big tech peers as investors seem to have underestimated its growth potential. Currently, the stock trades at a price-to-earnings ratio of just 23 even as it reported 33% revenue growth in its first-quarter earnings report.

Adding a cloud computing business would almost certainly give the stock some juice and significantly grow profits over the long term.

Meta needs to make the decision to do it, but the demand and the opportunity are clearly there.

Jeremy Bowman has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.