Meta Platforms confirmed last Wednesday to Jim Cramer that a long-discussed cloud service is in development, sending shares of the Facebook and Instagram parent company up nearly 9% that day. According to Bloomberg, which first reported the news, Meta is debating whether to offer access to AI models hosted on its infrastructure or to sell access to raw computing power. The move follows investor concerns from the evening of April 29, when Meta's fiscal 2026 first quarter results were met with heavy selling despite strong performance, as the Street questioned capital expenditure plans between $125 billion and $145 billion for fiscal 2026. Wall Street remains divided on whether the cloud business represents a strategic hedge against AI infrastructure overbuilding or signals excess compute capacity from overshooting internal needs.
Meta Stocks Rally 9% on Cloud Business Confirmation
Meta shares soared nearly 9% last Wednesday, the day the company confirmed the cloud service development to Jim Cramer. A week later, few details exist on exactly what Meta is planning, and the stock traded a few dollars per share lower than where it closed the day the news came out. Meta is the second-worst stock performer year-to-date among its hyperscaler peers, down more than 8%. Microsoft is down about 20%, Amazon is up nearly 5%, and Alphabet has gained over 15% year-to-date. Meta trades at 17.7 times next 12 months' earnings estimates, versus Amazon at 25.5 times, Microsoft at 19.6 times, and Alphabet at 24.9 times.
Meta Plans $125-$145 Billion Capital Expenditure in Fiscal 2026
Meta announced plans for between $125 billion and $145 billion of capital expenditures in fiscal 2026. That capex increase comes from the prior range of between $115 billion and $135 billion, and sits above the $122.64 billion expected, even on the low end, according to FactSet. Meta's revenue in fiscal 2025 rose 22% to nearly $201 billion. EPS for fiscal 2025 slipped 1.6% to $23.49. The company released Muse Image on Tuesday, a new AI model for creating images aimed at attracting creators and advertisers.
Needham Analyst Cites Overbuilt AI Infrastructure Concerns
Laura Martin, the longtime Needham analyst, released a note on Monday stating Meta is entering the cloud business because it overbuilt its AI infrastructure and won't need all the compute generated by its 2026 capex plans. Martin and her team said Meta will find the cloud business "difficult to enter this late, owing to well-entrenched deep-pocketed competitors including AWS, Google Cloud and MSFT Azure." They see concerns about return on invested capital as Meta "pivots from its 70% margin core advertising business to the 35% margin cloud business."
JPMorgan Estimates $20 Billion Annual Revenue Per Gigawatt
JPMorgan estimated that every gigawatt of Meta compute capacity offered in a cloud business could generate $20 billion of annual revenue and several dollars of earnings per share. Compute is measured in gigawatts because power is the limiting factor in data centers, with 1GW of compute meaning AI infrastructure that draws 1GW of continuous energy, or enough to power up to 1 million homes. Canaccord Genuity analysts stated in a note on Monday: "With an accelerating ad business, emerging subscription tiers, and an external market now paying observable rates for capacity, META's discount to the rest of the Mag 7 looks increasingly difficult to justify."
Alphabet Limits Meta's Gemini Access Due to Capacity Constraints
Alphabet told Meta it would need to limit the use of Gemini because it didn't have the capacity to meet Meta's demand. The development highlights how companies renting compute capacity face supply constraints when landlords prioritize internal needs. When Alphabet decides it needs more internally, it can limit supply to its customers.
FAQ
Why did Meta Stocks surge 9% last Wednesday?
Meta shares rose nearly 9% last Wednesday after the company confirmed to Jim Cramer that a long-discussed cloud service is in development. According to Bloomberg, which first reported the news, Meta is debating whether to offer access to AI models hosted on its infrastructure or to sell access to raw computing power.
What are Meta's capital expenditure plans for fiscal 2026?
Meta plans between $125 billion and $145 billion of capital expenditures in fiscal 2026, an increase from the prior range of between $115 billion and $135 billion. This exceeds the $122.64 billion expected even on the low end, according to FactSet. The spending focuses on AI infrastructure development.
How does Meta's stock performance compare to other tech companies year-to-date?
Meta is down more than 8% year-to-date, making it the second-worst performer among its hyperscaler peers. Microsoft is down about 20%, Amazon is up nearly 5%, and Alphabet has gained over 15% year-to-date. Meta trades at 17.7 times next 12 months' earnings estimates, the lowest multiple among this group.
