We all know Meta Platforms (NASDAQ: META) as the ubiquitous social networking ecosystem. Investors are also familiar with its booming digital advertising platform. But there's something else that's moving the needle these days.
As of July 16, Meta shares are up 21% this month. This stellar performance is better than all the other Magnificent Seven stocks. It's a notable reversal from June, when shares dipped 11%.
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Here is what's driving the surge that has added a whopping $270 billion to the company's market capitalization in July.
Like its hyperscaler peers, Meta is sparing no expense when it comes to artificial intelligence (AI). Capital expenditures will be between $125 billion and $145 billion this year, according to company estimates. It's time to start monetizing this spending.
On July 1, Bloomberg reported that the company is building a cloud computing division under the Meta Compute initiative. It plans to sell its unused compute resources and/or host AI models that developers can use. This is an admission that the business has been spending too aggressively on AI infrastructure. It appears to have more capacity than it knows what to do with.
Founder and CEO Mark Zuckerberg understands that computing capacity might be the hottest commodity on the planet right now, and his company has access to this vital resource. If Meta can earn a better return selling this to outside customers as opposed to using it for its own operations, then it's a no-brainer decision.
Investors will appreciate the urgency to try to generate revenue soon. This is extremely relevant today, as Meta's first-quarter capex total of $19.8 billion amounted to a sizable 61% of its operating cash flow during the period.
At the end of June, Meta shares traded at a price-to-earnings ratio of 20.5. Today, they trade at a multiple of 24.4. Market sentiment was certainly lower, but it has now improved, showcasing investor enthusiasm.
This also reveals that the market has higher expectations. All eyes continue to be on AI. Meta shareholders should listen to any commentary the management team provides on its new cloud venture, especially related to operational timelines and expected financial performance.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
