Key Points
Meta is planning to enter the cloud computing arena.
Its stock price jumped some 15% last week on the news.
Back in May at Meta Platformʻs (NASDAQ: META) annual shareholders meeting, CEO Mark Zuckerberg said something that caught a lot of people off guard -- that the notion of selling computing access, essentially entering the cloud computing arena, was "definitely on the table."
"Almost every week there are different companies that come to us from the outside asking us to both stand up an API service or asking if we have compute that they could buy from us at some premium to what we've bought it at," Zuckerberg said.
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Well now, according to various reports, including Bloomberg, it is in development, and it is called Meta Compute. Meta confirmed that the initiative is under development but said things could change and offered no details on its plans, according to Bloomberg.
Image source: Getty Images.
This would enter Meta into the cloud computing fray, where it would compete against "Magnificent Seven" rivals Amazon, Microsoft, and Alphabet. On July 9, Zuckerberg, in an interview with Bloomberg, confirmed that the idea of offering computing access "makes sense," furthering the notion that Meta is ready to make a splash in this business.
Shares jump on Meta's cloud ambitions
Since the July 1 Bloomberg article came out, Meta stock has jumped some 21% to $677 per share. Last week, sparked by the Zuckerberg interview, Meta stock soared 15%, making it the best week for Meta stock in more than two years.
Bloomberg's initial report included some details, although unconfirmed, on what Meta's cloud plans might look like. One idea, per Bloomberg, is to charge developers to "access AI models hosted on its infrastructure." The other option is to sell excess computing capacity, similar to other cloud providers.
It is way too early for investors to get too concerned about this one way or the other, as we don't yet know the details on what Meta is planning. I would guess that we'll hear more when Meta reports earnings on July 29.
Due to its size, resources, and relationships, Meta would have the capacity to generate meaningful revenue in this booming space. That's probably why we are seeing investor enthusiasm. But the real dirt is in the details, so keep an eye out for more.
In my opinion, Meta stock remains a great buy heading into earnings. Some 91% of analysts rate it a buy with a median price target of $810 per share, which suggests 20% upside. And it is still relatively cheap, trading at 24 times earnings and 21 times forward earnings, below the S&P 500 average.
Dave Kovaleski 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.