Key Points
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Meta Platforms intends to have tens of gigawatts of compute capacity available in a decade, which will help support its neocloud ambitions.
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The issue is that Meta Platforms and its fellow hyperscalers are the biggest users of AI compute.
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Meta Platforms is scrambling to extend deals with neoclouds, showing that it still doesn’t have enough compute to meet its own business needs.
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Meta Platforms (NASDAQ: META) recently made a big announcement that caused neocloud stocks like Nebius (NASDAQ: NBIS) and Iren (NASDAQ: IREN) to stumble. Facebook’s parent company said it would explore building its own neocloud business and renting out its excess compute capacity.
That aligns with the company’s earlier announcement of intent to build tens of gigawatts of AI data centers this decade and hundreds of gigawatts of capacity over time. However, investors shouldn’t rush to imagine Meta Platforms running a vibrant neocloud division under its corporate umbrella.
Meta Platforms needs more compute
Companies like Nebius and Iren aren’t using the data center capacity they’re building to develop their own large language models or physical AI systems. They are AI enablers.
Meta Platforms still needs computing power for its own initiatives, such as AI models and smart glasses. It’s also using artificial intelligence to enhance the effectiveness of the advertising on its platforms to drive more revenue.
Meta Platforms signed a bunch of deals last year to obtain more computing power to support its AI ambitions, and that trend continued this year. It has already inked extended agreements with CoreWeave and Nebius.
The fact that Meta Platforms is still scrambling to sign these types of deals shows that it won’t have available compute capacity to lease to other companies anytime soon. Other hyperscalers and AI giants are also ramping up these types of deals. For instance, Anthropic recently secured 401 megawatts of capacity from Terawulf via a 20-year, $19 billion contract.
There isn’t enough cloud computing capacity in Meta Platforms’ grasp to run its own AI businesses and supply more to outside enterprises. As long as this gap exists, Meta Platforms won’t have an immediate path into the neocloud industry.
AI data centers take years to build
Meta Platforms CEO Mark Zuckerberg has expressed his desire to build many AI data centers for the company, but each of those projects will take years to complete. For instance, Meta Platforms’ Hyperion project won’t be completed until 2030. That will be a massive 5-gigawatt (5,000-megawatt) data center upon completion, but considering how Meta Platforms’ demands for in-house compute are rising, it’s tough to predict how much of that capacity it will be able to make available for smaller enterprises.
When it comes to the neocloud opportunity, Meta Platforms is sitting on the fence. It’s primarily an online advertising company that is on the verge of tapping into artificial intelligence in ways that translate into meaningful revenue growth. This technology could finally help Meta Platforms meaningfully diversify beyond online ads, just as Alphabet did more than a decade ago.
However, when it comes to neocloud, companies like Iren and Nebius have better shots at gaining market share and winning over hyperscalers and small enterprises alike. By the time Meta Platforms is ready to enter the neocloud arena in a meaningful way, Iren and Nebius may have more than doubled their existing gigawatt inventories.
Investors should be excited about Meta’s AI glasses, which were recently released. We should get an update about that product when it delivers its second-quarter report. However, what Meta’s entry into the neocloud industry might look like remains to be determined.
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Marc Guberti has positions in Iren. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.
