Mark Zuckerberg Just Announced Great News for Meta's Shareholders
Complete. Here is the key summaryMeta Platforms reported Q2 revenue growth of 28% to $60.8 billion, though EPS and free cash flow declined due to heavy AI investments. CEO Mark Zuckerberg highlighted strong demand for Meta's excess AI computing capacity, with reports of early talks to rent power to Anthropic. This potential cloud business aims to offset investment costs and drive future growth, supported by a robust core advertising business and a massive user base.
Meta Platforms (META +3.28%) released its second-quarter earnings report on July 29. The company's financial results weren't bad, at least as long as we stop at the top line. Meta's revenue grew by 28% year over year to $60.8 billion. But the tech leader's earnings per share dropped 13% year over year to $6.18, while its free cash flow came in at $784 million, down almost 91% from the year-ago period.
Meta Platforms is pouring a small fortune into its artificial intelligence (AI)-related ambitions, and it is impacting its margins and bottom line. It's no wonder that many people are running for the exit. However, recent comments from Meta's CEO, Mark Zuckerberg, should give investors some confidence that the company might eventually reap the benefits of these investments.
Image source: The Motley Fool.
Meta Platforms' cloud business is in the works
There have been reports in recent weeks suggesting that Meta Platforms is planning to rent out excess AI computing capacity to other data centers. Although it seems like a promising business endeavor, investors naturally had many questions. Here is just one of them: Can Meta Platforms successfully join the crowded cloud computing market and actually challenge the leaders in the niche, including the likes of Amazon (AMZN +15.32%), Microsoft (MSFT +3.02%), and Alphabet (GOOG +6.88%) (GOOGL +6.73%)? During the company's second-quarter earnings conference call, Zuckerberg addressed this concern, at least to some extent. Talking about the opportunity to sell computing capacity, he said:
We're getting a lot of offers for compute at a significant premium over what we paid for it.
These aren't unsubstantiated claims either. Meta Platforms is reportedly in early talks to rent out AI computing power to Anthropic, a privately held company and a leader in developing large language models. The deal is far from done, but the fact that it is in the works at all tells us something: Meta Platforms is exploring launching a cloud computing business because it sees demand for the kinds of services it hopes to provide.
NASDAQ: META
Key Data Points
If the company can move forward with these plans, it may help justify the significant investments it is making in AI. This business could be a powerful growth driver over the medium term. According to some estimates, AI infrastructure spending will exceed $1 trillion by 2029, up from just $318 billion last year. Some of this spending will flow right into the kinds of services Meta Platforms wants to offer.
What does all this mean for the stock? Meta's core advertising business remains strong and continues to improve thanks to AI. The company also boasts a deep ecosystem, with 3.60 billion daily active users across its websites and apps, providing significant monetization opportunities. The tech giant's proposed cloud business could further boost sales and accelerate earnings growth. Since much of the investment has already been made, it would almost certainly lift the company's margins. This new growth opportunity is another reason investors should consider buying the stock on the dip.