Meta Cloud Push Threatens Its Best-in-Class Margins
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- Meta stock jumped 9% on Wednesday — its sharpest rally in more than five months — after CNBC's Jim Cramer confirmed the company will sell excess computing power to outside customers, though Meta is still debating whether to offer hosted AI models or raw compute access (per Bloomberg).
- CoreWeave and Nebius shares suffered double-digit drops on Wednesday as investors priced in Meta's entry into selling AI-specific computing capacity built on Nvidia chips.
- Evercore analyst Mark Mahaney said Meta is unlikely to challenge AWS, Azure, or Google Cloud, instead following the neocloud playbook of CoreWeave and Nebius, a comparison also drawn by Primary Venture Partners' Brian Schechter.
- Meta still generates 98% of revenue from digital ads, with an 82% gross margin and 41% operating margin last quarter — a profitability profile that any cloud business would dilute, per Freedom Capital Markets' Paul Meeks.
- Google's track record offers a preview: its services business (mostly ads) posted a 42% operating margin in Q1, while Google Cloud posted 18%, and Google Cloud did not record a profit until Q1 2023 after launching in 2008.
- Meta boosted the high end of its 2026 capital expenditures guidance by $10 billion to $145 billion in April and raised $25 billion through a bond sale to help fund the buildout, fueling investor pressure to monetize the spend.
- Both Schechter and Mahaney compared Meta to SpaceX, noting that just as SpaceX has signed deals worth more than $2 billion a month selling capacity to Google, Anthropic, and Reflection AI, Meta is now positioned to monetize compute after its own AI apps failed to drive huge customer traction.
- Meta stock had closed out its fourth straight quarterly drop — losing nearly a quarter of its value — just before Wednesday's rally.
Why it matters: Meta's stock had just shed nearly a quarter of its value over four straight losing quarters, so the 9% rally reflects Wall Street's demand for a path to monetize the $145 billion 2026 capex plan beyond ads. That path comes at a cost: Google Cloud took 15 years to reach even an 18% operating margin, while Meta's ad business runs at 41% — meaning every dollar of cloud revenue earned will likely be worth less to Meta's bottom line than the ad dollars it could have been allocated to.
