Morgan Stanley backs Meta’s AI cloud pivot, sees EPS boost

Meta Platforms ↗ 0.84% is developing a cloud infrastructure business to sell access to AI computing power and models to outside customers, a move that sent its stock surging nearly 9% on July 1 and positioned the social media giant as a new competitor to Amazon Amazon.com, Inc. ↘ 0.35% Web Services, Microsoft ↘ 0.99% Azure, and Google Cloud Alphabet Inc. ↗ 0.78%.

The Cloud Play

Bloomberg first reported on July 1 that Meta is forming a business under an internal initiative called Meta Compute to generate revenue from excess computing capacity accumulated through its aggressive data center buildout. The company is considering two approaches: selling access to AI models hosted on its infrastructure — including its Muse Spark models — similar to AWS's Bedrock offering, and selling raw computing capacity akin to neocloud providers like CoreWeave.bloomberg+2

CEO Mark Zuckerberg had signaled the move during a May shareholder call, telling investors that a cloud business is "definitely on the table" and that "almost every week there are different companies that come to us from the outside asking us to both stand up an API service or asking if we have compute that they could buy from us at some premium to what we've bought it at".axios+1

Wall Street Reaction

Meta shares rose 8.8% on the day, their largest single-day gain since January, according to The Wall Street Journal. Morgan Stanley analyst Brian Nowak reiterated a Buy rating with a $775 price target, estimating that a neocloud leasing model could add roughly 8% to Meta's 2028 earnings per share. Morgan Stanley's analysis also concluded that Meta's decision to build its own cloud service reflects persistent GPU shortages that the firm forecasts will last until at least the end of 2027.wsj+4

Regulatory Tailwinds

The timing coincides with regulatory pressure on Meta's would-be rivals. On June 25, the European Commission reached a preliminary position that AWS and Azure should be designated as "gatekeepers" under the Digital Markets Act, finding that both services are "an important gateway between businesses and their customers in the EU". If confirmed, Amazon and Microsoft would have six months to comply with the DMA's competition obligations, potentially creating an opening for new entrants unburdened by those rules.datacenterdynamics+3

Meta's plans remain in development and the company declined to comment on the Bloomberg report. The strategy could still change, but the market's reaction suggests investors see a credible path toward monetizing what has been among the largest capital expenditure programs in corporate history.phemex+1