Shares of Meta Platforms (META) increased by 1.4% during pre-market trading on July 6, recovering slightly from a notable decline the previous day. The stock is currently priced between $585 and $586.
Meta’s CEO Mark Zuckerberg acknowledged that the development of AI agents has not progressed as anticipated over the last four months during an internal town hall meeting. He indicated that the company’s reorganization efforts have yet to yield the desired results for leadership.
Despite this, Zuckerberg expressed optimism, expecting more substantial returns from AI initiatives within the next three to six months. This sentiment was echoed by the company's recent announcement regarding ventures into the cloud business.
Cloud Business Initiative
The pre-market stock increase is partly attributed to reports of Meta's plans to launch a cloud division aimed at monetizing excess AI computing capacity. This could potentially include offering third-party access to AI models hosted on Meta's infrastructure.
According to Evercore analyst Mark Mahaney, Meta is unlikely to go head-to-head with dominant cloud providers like Amazon, Microsoft, or Alphabet. Instead, he predicts Meta will adopt a model similar to neoclouds, such as CoreWeave and Nebius, which specialize in AI-driven computing services.
The cloud strategy is significant as it transforms the perception of Meta’s hefty data center expenditures from sheer costs to potential sources of revenue. A parallel can be drawn to SpaceX, which successfully rents out excess computing capacity at competitive rates.
Financial Performance
Meta’s core business remains robust, with revenue rising 33% year-over-year to $56.3 billion last quarter. This growth has been fueled by a 19% increase in ad impressions and a 12% rise in average ad prices, supported in part by AI-enhanced recommendation tools that boost user engagement.
Despite this impressive growth, META's forward price-to-earnings ratio stands at just 18 based on this year's analyst projections, suggesting that the stock may be undervalued relative to its growth potential. The shares have retreated from their 52-week peak of $796.25, currently trading closer to the lower end of their annual range, which spans from $520.26 to $796.25.
Market Environment
The broader macroeconomic backdrop is mixed. On July 6, the Nasdaq Composite saw a decline of 0.8%, while the Dow Jones Industrial Average gained 1.1%, highlighting a shift away from technology and growth stocks.
Additionally, Meta is facing increasing regulatory scrutiny. The Indian government issued a second warning within the same week, marking heightened concerns over the company's compliance and operations.
