Meta CEO Mark Zuckerberg Just Delivered Fantastic News for Investors

As big tech companies pour billions of dollars into data centers for artificial intelligence (AI), investors are growing concerned about whether all this spending will actually pay off. Meta Platforms (NASDAQ: META) has faced particular investor scrutiny because, unlike Amazon, Alphabet, and Microsoft, it doesn't currently sell cloud computing services to outside companies.

But it seems that's about to change.

According to a Bloomberg report, Meta is developing a business plan to lease its excess data center capacity. It's fantastic news for investors and comes on the heels of Mark Zuckerberg's January announcement of Meta Compute, an initiative to build tens of gigawatts of compute capacity this decade.

Image source: The Motley Fool.

There's room for Meta to build out a cloud business

Nobody's quite sure where the data center boom will ultimately go, but it's clear that AI is sending demand for computing capacity through the roof. Experts believe global data centers will bring tens to hundreds of gigawatts of compute online over the next decade and beyond.

It seems far-fetched, but remember, AI adoption has only just begun. Agentic AI is a near-term growth catalyst, and there's still an ocean of potential in physical AI applications, such as autonomous vehicles and humanoid robotics. There's likely room for another cloud computing competitor, and Meta is probably already large enough on the infrastructure side, even if it's not selling it yet.

Meta will need to think through its go-to-market strategy to succeed. The incumbent cloud service providers are ecosystems that span well beyond compute, including developer tools, security, and other resources. Meta will either need to duplicate that -- arguably a tall order -- or find another angle.

Maybe it could leverage its enormous size and sell raw compute to targeted customers who don't need all the other bells and whistles. If so, even a limited footprint in a massive cloud market can help lift returns on Meta's AI spending.

Meta Compute is as much a risk as it is an opportunity

Anything near the tens of gigawatts Mark Zuckerberg called for will cost a mountain of capital. For instance, OpenAI and other backers are funding Project Stargate, an AI data center project targeting 10 gigawatts of capacity. The joint venture's estimated total investment is an eye-watering $500 billion.

There are also ancillary challenges, such as sourcing enough power for these data centers -- there's a reason that Elon Musk is trying to put data centers in orbit. Fortunately, Meta has generated more than $48 billion in free cash flow over the past year thanks to its exceptionally profitable and growing core advertising business.

Almost any way you slice it, Meta is making a massive financial gamble on data centers and AI. It's great news that Meta is exploring different ways to justify its enormous AI and data center investments. That said, you'll probably want to be on board with Mark Zuckerberg's AI plans to begin with if you're going to buy the stock.

Justin Pope has positions in Alphabet, 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.