Meta Stock Surged 9% to $612.91 on July 1 After Reports That Mark Zuckerberg Is Building a Cloud Business to Compete With Amazon, Microsoft, and Alphabet
Key Points
Meta Platforms plans to sell its excess AI compute capacity to outside customers.
This might be a clear warning sign that the company’s capital expenditures have been too high.
Given the incredible demand there is for data center access, Meta can start generating revenue quickly.
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Not a day goes by that the market doesn't receive a wrinkle in the artificial intelligence (AI) story. It was reported that Meta Platforms (NASDAQ: META) plans to sell its excess computing capacity, in effect building its own cloud segment. This would pit its new venture, called Meta Compute, against dominant platforms from Amazon, Microsoft, and Alphabet.
The social media stock surged 9% to $612.91 on July 1. Shares then dipped 5% on July 2. Should investors view this strategic pivot as a bearish or bullish signal?
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Did Meta overbuild?
Meta's capital expenditures (capex) increased 84% year over year in 2025 to $72.2 billion. The figure is projected to total between $125 billion and $145 billion this year. These are enormous figures that reveal how bullish founder and CEO Mark Zuckerberg is on AI's potential.
But the dollar amounts demonstrate a changing financial structure. Meta has now become a capital-intensive business, and the market appears worried. Shares are down 26% since hitting an all-time high in August last year.
The concerns are valid, as they rest on the company's ability to earn a meaningful return on this unprecedented level of spending. Zuckerberg previously hinted at the company's options if it ended up overbuilding capacity.
The bearish view is obvious here. It looks like Meta is admitting that it invested too much money in AI-related data centers and infrastructure. It's already figured out that it can't monetize this capex through its internal operations. Maybe this is an early indication that the AI boom is on shaky ground.
Demand is ahead of supply
Entering the cloud computing market seems like a rational move. However, Meta will compete squarely with Amazon Web Services, Azure, and Google Cloud, which have multi-year headstarts, comprehensive product and service offerings, and proven track records.
An upbeat view is that the management team realizes that selling AI compute capacity to outside customers generates a much better return, even with competition from established players. This is particularly the case right now, since demand for these resources far outpaces supply. Alphabet paying Space Exploration Technologies $920 million per month for AI compute capacity is a clear sign of how constrained the industry is.
The good news is that Meta's core operations are thriving. Advertising revenue jumped 33% year over year in the first quarter (ended March 31), driven by strong gains in ad impressions and pricing. This is a foundation that shareholders can depend on.
I believe investors should view this move in a positive light. Meta Compute is a way to produce revenue sooner rather than later, which will help to ease lingering fears about the huge AI capex cycle.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
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