When Meta Platforms announced its plans to spend $65 billion in CAPEX this year, everyone got excited about its AI ventures again. The DeepSeek AI news, which forced investors to rethink how much infrastructure investment is needed, was a reality check. However, the same event also showed the importance of open-source development. Letting the broader community contribute to the development can not only produce better technology but can also result in cost-savings, as DeepSeek’s $5.6 million spending to train its latest model showed.
While no one is denying the fact that META has the financial muscle as well as the talent to innovate, questions have been raised about how it will monetize its Llama model, the ChatGPT equivalent of the company. This is a valid question. If META plans to lead the world in open-source AI model development, how does it plan to monetize it to make the effort worth its while?
To understand how the economics of the Llama model work, we can take some hints from META’s history. Whenever the company introduces a new product, it works on getting people to use it as much as possible, even if this means losing money. Once the user count hits a magic number, say one billion, that’s where the monetization kicks in. For a company like META, getting to a billion users isn’t that difficult, considering it has over 3.5 billion daily active users across its platforms.
Another question that’s worth asking is whether META will charge its users for the Llama model itself. Or let them build apps on it, essentially making them addicted to the platform, and then monetize those apps?
Whichever model the company goes with, two things are clear: Llama will one day be a major source of revenue and the company will make money off it, even if regulatory pressures worry investors in the short term.
A note of caution for the investors though. META’s growth in the near term will be slow. It added $27 billion to its revenue year over year. Why would investors have any issue with it spending another $65 billion on CAPEX when the company has a great track record of getting a return on its investments? This return may take time, but it will come.
Meta Platforms Inc. is 3rd on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 235 hedge fund portfolios held META at the end of the third quarter which was 219 in the previous quarter. While we acknowledge the potential of META as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as META but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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