Source: Fortune
Summary
Meta’s stock rose 7% after a report that the company is building a new business to sell excess AI computing capacity to outside customers, competing with AWS, Microsoft Azure, and Google Cloud. However, Mark Douglas, president and CEO of MNTN, thinks the more interesting story is the economics of building AI infrastructure in the US, which he believes is not going to age well due to high costs and community resistance. He suggests that sovereign-wealth-backed capacity in the Gulf, particularly in Saudi Arabia, will be a major competitor. Douglas is also skeptical about Meta’s plan to sell cloud computing, citing the difficulty of pivoting into a new business and the limited number of potential customers.
Our Reading
The announcement sounds familiar. Meta’s move into cloud computing is seen as a way to diversify its revenue streams, but Douglas thinks it’s a detour, not a major strategic move. The company’s core business is social media, and selling cloud computing is a different beast. The numbers tell one story, but the reality is that building AI infrastructure in the US is expensive and not attractive.
The strategy enters a familiar phase. Companies like Meta are trying to enter new markets, but it’s hard to build a new company or product line from scratch. The talent that knows how to build something from scratch usually doesn’t work for a big company like Meta. The market’s instinct to reward a well-known company for entering a new business is underselling how difficult that pivot actually is.
The numbers tell one story, but the reality is that Meta’s ad business is still its core strength. Douglas is bullish on Meta’s AI strategy, particularly its open-source models, and what it means for advertising. The company’s ability to recruit and build massive amounts of data will benefit its ads business.
Original observation: Meta’s detour into cloud computing is a tactical move, not a major strategic one, and all tactical moves have a beginning and an end.
Author: Evan Null
