Meta Platforms Considering AI Cloud Business Amidst Struggling Advertising and AI Investments

In August, interest in artificial intelligence (AI) surged in the stock market, but Meta Platforms (NASDAQ: META), led by founder Mark Zuckerberg, failed to join the trend. The company is investing heavily in AI, but its adoption has not materialized across most of its software services.

Last quarter, Meta spent $30 billion on capital expenditures, nearly doubling its capex year over year. For the full year, Meta expects to spend $130 billion to $145 billion on capital expenditures, primarily related to AI. Some of this will be used to advance its advertising platform, but the majority will go toward frontier research and inference capacity for AI models.

Meta's AI models do not see much external use, so it is already building up excess capacity in data centers that is not being utilized. Zuckerberg stated that other AI companies have reached out to Meta Platforms to buy access to its compute capacity at a premium over the purchase price, although the exact financial details of the arrangement are unclear.

However, if compared to recent deals signed by Space Exploration Technologies that are set to generate tens of billions in annual revenue, Meta could quickly grow its AI cloud business if it chooses to. The risk arises because Meta is already struggling to identify internal use cases for its AI infrastructure.

For the first time in a while, Meta's operating earnings fell last quarter. Over the last 12 months, earnings before interest and taxes (EBIT) were $87 billion and are likely to continue falling over the next few years if capital expenditures continue to grow without an AI business model in place.