Meta Platforms’ Cloud Push: Growth Opportunity Versus AI Concerns

Key Points

• Meta Platforms stock rose 8.8% on July 1 following reports that the company may begin selling excess compute capacity to outside firms.
• Comparisons to CoreWeave and a SpaceX-Alphabet leasing deal suggest Meta's potential cloud business could scale quickly and ease concerns over rising capital spending.
• CFO Susan Li recently said Meta has consistently underestimated its compute needs, casting doubt on how much excess capacity actually exists for the cloud push.

Shares of the Magnificent Seven giant Meta Platforms NASDAQ: META recently received a serious boost after the company’s potential cloud push moved closer to reality. Shares jumped 8.8% on July 1 due to reports that it plans to sell its excess compute capacity to third parties.

While the market’s reaction was clearly positive, if Meta follows through, the move has both positives and negatives for investors to consider. Although Meta’s cloud push could be a significant source of revenue and profit, it also raises questions about the long-term competitiveness of its AI products.

Positives on Selling Compute: AI Monetization and Spending Signals

Among the biggest reasons markets reacted positively to Meta’s cloud computing push is what it means for the firm’s ability to generate new AI revenue. As the company rents its computing capacity to other firms, Meta may be able to generate significant margins on its capital expenditures (CapEx).

When thinking about Meta’s positioning in the cloud computing space, neoclouds like CoreWeave NASDAQ: CRWV offer a solid comparison point. This comes as CoreWeave exclusively targets AI infrastructure demand, while longer-standing companies like Microsoft NASDAQ: MSFT target both AI and non-AI demand.

With Meta’s AI infrastructure heavily concentrated on graphics processing units, the company would operate in a similar space as CoreWeave. Thus, examining CoreWeave can help provide a glimpse into the extent to which Meta could benefit from entering the cloud computing market.

Last quarter, CoreWeave generated revenue of $2.08 billion. Off this, the company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were approximately $1.2 billion. Achieving something similar could add a meaningful uplift for Meta, whose calculated Q1 2026 EBITDA was approximately $28.87 billion. Still, as Meta enters the market, the added competition could push down margins in this space.

However, with the overall demand for compute still very much on the rise, Meta could have a significant growth opportunity from there. Additionally, the recent deal SpaceX NASDAQ: SPCX signed with Alphabet NASDAQ: GOOGL suggests that Meta could scale cloud revenue significantly faster than CoreWeave. Alphabet will pay SpaceX $920 million per month to lease computing assets, implying $2.76 billion in quarterly revenue.

Another important implication is what the move signals about Meta’s CapEx spending going forward. If Meta already believes it has excess compute, it suggests that the company may not need to spend as heavily on CapEx in the future. Meta’s elevated and increasing CapEx spending has arguably been the largest overhang on its stock price. In turn, a signal that this trend could potentially revert is a positive for many investors.

The Negatives: Selling Compute Indicates AI Product Weakness

On the negative side, Meta’s willingness to sell compute suggests it does not have enough strong internal use cases for that compute, raising questions about its broader competitiveness in delivering AI products.

The timing of this pivot is noteworthy given the release of Meta’s Muse Spark model several months ago, which is far more intelligent than its predecessors. The move to sell excess compute indicates that the development of Muse Spark-related products may not be proceeding as quickly as hoped. This comes as such products would likely require more compute to support their usage. In fact, recent reports state that CEO Mark Zuckerberg told employees that the pace of the company’s AI agent development has been slower than expected.

Furthermore, it is important to note that the details of Meta’s cloud push are very limited at this point. At present, it is unclear how much of Meta’s compute it considers to be in excess of its internal needs. Meta’s view on this is important, as its level of excess compute capacity would directly translate into the amount of revenue it could generate from its cloud push.

Notably, statements made in Meta’s most recent earnings call push back against the idea that it has significant excess compute. Chief Financial Officer Susan Li stated, “Our experience so far has been that we have continued to underestimate our compute needs.” She went on to note, "Our expectation is that compute will become even more central to the business going forward.”

Meta’s Next Earnings Call Could Provide Significant Clarity on Cloud Ambitions

Overall, Meta has yet to provide any concrete comments on its cloud push. Given the significant implications for Meta’s outlook, it will likely be a key topic of discussion during the firm’s next earnings call.

When Meta addresses cloud computing directly, investors should monitor the extent to which Meta plans to provide compute to third parties. This should provide more detail around what Meta believes its revenue opportunity is and its level of confidence in marketing its own AI solutions.