The key word for those considering an investment in Meta Platforms (NASDAQ:META) stock is “platforms.”
Meta is what I call a “Cloud Czar.” It’s one of only five companies in the world that fully controls its digital destiny and, by extension, that of everyone else.
The others are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.Com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOGL).
Because Meta doesn’t rent out its cloud capacity, using it only for its own global services, it’s controversial and misunderstood.
That’s not reflected in META stock. Over the last two years Meta has the same chart pattern as Alphabet and Amazon, which also extensively use advertising in their business models. All three fell hard in 2022. All three have risen in 2023.
A Closer Look at META Stock
Meta’s fall, and hence its rise, are just exaggerated. Those who bought in September 2021, near the top of the last bull market, are down about 14% on Meta stock since then. The best of the three is Alphabet, which still shows a loss. Amazon is still down nearly 25%.
The problem, for analysts, is that we tend to evaluate investments based on numbers, reputation, and what we think of the CEO. Investors look at what drives the numbers. It’s the cloud.
Generative AI is, at its heart, a cloud application. It requires the power of the cloud to train and manipulate large language models on huge amounts of training data. The model can change, the data can change, so can the target market, but that’s the business.
What’s essential to that business is access to the cloud. It’s taking billions in new investment to prepare the clouds for AI. Cloud investment grew $10 billion, year-over-year, in the first quarter of 2023. Meta spent $7.1 billion of that.
Owning a cloud is like controlling an oilfield was in the last generation, or an enormous factory complex in the generation before that.
Meta CEO Mark Zuckerberg committed his company to the cloud over a decade ago, before he had the cash flow to sustain it. It was like Henry Ford building his River Rouge plant. It was defining.
Meta’s AI Play
No matter how Meta chose to play the AI game, it was going to be a winner.
Meta has chosen to play it with open source, licensing its code so that it can be tested, tweaked, and improved by millions of developers around the world.
Since Meta controls the license, Meta can pull the code back any time it wants. (True open source only comes from a Foundation dedicated to the principle, not from a corporate entity.)
This puts Meta in the catbird’s seat when it comes to AI, and at the lowest possible cost. It’s the same approach it used in building its cloud through the Open Compute Foundation. The difference is it has more control this time because it has the license.
The Bottom Line
META stock is going to be a winner in the generative AI space because Meta owns the stadium where the game is being played.
Will it do as well as Microsoft, which is adding AI to its software stack? Maybe not. Microsoft is up almost 20% over the last two years.
Will it do as well as Alphabet and Amazon? That’s also debatable.
What’s clear to me is that META stock will do well. Its stock will be worth more a year from now, as will stock in the other Cloud Czars. Because it’s good to be the King.
As of this writing, Dana Blankenhorn held LONG positions in AMZN, MSFT, GOOGL and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
