Meta Platforms Just Hinted at a New Business Unit That Could Generate Billions

Meta Platforms (NASDAQ: META) has never been shy to try new things. A few years ago, it was doing everything it could to bring the metaverse to fruition. It spent billions of dollars on the project, and it was an absolute flop.

Currently, it's spending hundreds of billions of dollars on AI computing capacity, and the success of this endeavor is still unknown. Because of Meta's previous swings and misses, the market is a bit skeptical of all the money that Meta is spending on artificial intelligence (AI), and the investment community is worried that it could be a waste.

However, CEO and founder Mark Zuckerberg hinted at a new business unit that could prove the doubters wrong.

Image source: Getty Images.

Cloud computing is a tried-and-true business model

During Meta's annual shareholder meeting, Zuckerberg confirmed that the company was considering launching a cloud computing business. That's a major development, as these business units have been wildly successful at other AI hyperscalers. Amazon, Alphabet, and Microsoft all have thriving cloud computing wings that generate billions in profits each quarter. Meta already has the computing infrastructure built out for its own AI research, training, and models, so it wouldn't take a lot to start renting that out to clients to create a new growth-oriented business unit.

This would be a genius move by Meta, as it helps to diversify its business. Currently, nearly all of Meta's revenue comes from the ad revenue it generates on its social media platforms: Facebook, Instagram, Threads, and WhatsApp. While this is currently an excellent business to be in, advertising is a cyclical market that follows general economic sentiment. If clients start to worry we're headed for a recession, they cut ad spending, which hurts Meta's revenue.

Having a subscription- or usage-based platform, like cloud computing, could smooth some of Meta's ups and downs, as most clients don't change their compute usage unless the economic backdrop is really gloomy.

However, it may be some time before it actually launches a cloud computing division. Zuckerberg noted that Meta is using all its computing capacity and would only consider launching a cloud computing platform if he believes Meta has overbuilt. That's not the case right now, so there may not be a cloud computing unit in the near future. That's disappointing to investors (like myself) because if Meta overbuilt its AI computing capacity, there's a good chance the others have as well, and selling its excess computing power may be a bit more difficult.

We'll see how this develops, but if Meta launches a cloud computing business, the market would likely love it and send the stock higher. For now, though, it's just a dream, and investors need to focus on Meta's current business makeup, which actually looks like an attractive investment.

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