Dan Niles, founder and portfolio manager of Niles Investment Management, said in a recent program on CNBC that Meta Platforms (NASDAQ:META) could build a public cloud as its next big business. Google, Microsoft and Amazon all rent out cloud computing to other companies, and Meta does not, Niles said. A cloud business would be the next way for Meta to make money from its huge AI spending, he said.
Niles said the stock still has momentum. His firm wrote about Meta on September 7, when the shares were down about 7% for the year, and since then Meta has launched Muse, an AI agent that is number one on the App Store, ahead of ChatGPT, he said.
“Do I like it as much as I did on September 7th? Of course not. I mean, it’s up a ton, but I think you still have momentum in it,” Niles said.
Let’s dig deeper into Meta. Big investors own it too. Ken Fisher’s Fisher Asset Management held about $3.8 billion of Meta stock, or 1.14% of its portfolio, at the end of the second quarter after raising its stake by 2%, and Meta ranks fifth in our list of his 10 best AI stocks. Click here to see the other nine picks.
Bull case
Bulls start with the size of the audience. About 3.6 billion people use at least one Meta app every day, and revenue grew 28% last quarter while that audience grew only 3%. The gap comes from AI. Better ad targeting helped Meta show 14% more ads at a price per ad that was 12% higher. Meta pays for its AI spending from an advertising business that already throws off a lot of cash. Curious how Meta’s AI deals could pay off? See whether Meta now gets 160 million AMD shares for free.
The spending also has more than one use. The same data centers can run ad recommendations, assistants, agents and tools for developers, and Meta can put new AI products in front of users through Facebook, Instagram, WhatsApp and Messenger. Muse gives it a new way to earn. Advertising still makes up almost 98% of revenue, and Muse comes with Meta One subscription plans. Muse is costly to run at launch, but Cantor Fitzgerald says Meta has several ways to cut the cost of each task by more than 80% over the next 18 to 24 months and run Muse at a profit. Want more AI ideas? See our list of the 10 best AI stocks to buy before they explode.
Bear case
The biggest worry is the bill. Meta’s spending plan for 2026 is so large that free cash flow is expected to fall sharply and not recover until at least fiscal 2028. Meta has also signed long-term contracts and data center leases that run for years, so if demand or Muse sales fall short, some of that capacity could sit idle while the costs continue. The number of hedge funds holding Meta fell from 262 to 254 in the second quarter, according to Insider Monkey’s database. See which hedge funds own Meta.
Muse itself loses money for now. Cantor Fitzgerald estimates Meta spends about 25 cents on each task at launch, and the profit depends on that cost coming down.
While we acknowledge the risk and potential of META as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than META and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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