The hyperscalers are spending an immense sum on the AI data center buildout. And it looks like the path of least resistance is higher when it comes to CapEx. Indeed, we’ve heard so much about the AI infrastructure boom, but it’s still in its early days.
It’s more of a multi-year effort, and while CapEx won’t just keep moving higher forever, I do think that investors have plenty of reason to shed their fear of high, rising CapEx when it comes to the cash-rich hyperscalers. It’s not like a company like Meta Platforms (NASDAQ:META | META Price Prediction) doesn’t have more than enough to splurge with as they look to capture a big slice of the next big growth market.
With a hefty $145 billion high watermark for CapEx that has some investors on pause, especially after a quarter that didn’t seem to have much in the way of ROI compared to rival hyperscalers, Mark Zuckerberg and company now have a lot to prove as the newest hyperscaler looks to show that it can not only keep up in AI, but move to the very front of the pack.
If there’s a tech visionary who can put up a fight, it’s quite literally Mark Zuckerberg, who was recently seen sparring with a UFC fighter, Merab Dvalishvili, on a barge in the middle of a lake. Meta Platforms might not be the hyperscaler that’s furthest along on the AI monetization curve. But then again, it only announced its intent to sell AI compute via Meta Compute just a few months ago. And its red-hot model, Muse Spark, is also a newcomer to the AI leaderboards.
Don’t sleep on Meta’s Muse
What’s most remarkable, at least in my opinion, is how quickly Muse Spark jumped in the benchmarks. Meta’s Superintelligence team still has plenty of work to do, however, to catch up with the likes of Anthropic or OpenAI. But at the end of the day, the company has now become a credible challenger at the frontier.
Some may think that frontier labs are just spending a fortune to build a marginally better commodity. Of course, there’s a ton of AI competition these days, but the battle at the frontier, I think, is more than just about rapid commoditization.
Arguably, the firm at the front, with the best model, could enjoy much of the spoils. And while the lead is sure to evaporate at the drop of a hat, the big question is whether the leader can continue to raise the bar, staying ahead of rivals that aren’t all too far off in that second spot.
Surprises await at the frontier of AI
When you consider the disruption that can happen at the frontier (think about what would have happened if a Chinese AI company was the first to get to a Claude Mythos-level model), it’s clear that AI labs not only have an important job on their hands, but they might stand to be winners in a winner-takes-most kind of market climate.
Even if that lead only lasts for a few months, the potential spoils for time at the front of the pack could have the potential to lead to massive ROIs that have other frontier labs drooling and spending even more money to achieve.
Of course, it takes more than just sheer CapEx to win the AI race. Talent, strategy, and vision are all key to staying on that fast lane en route to artificial general intelligence and, ultimately, superintelligence.
Meta might seem a bit late to the AI party, but I’d argue it’s already made up so much ground. And with a clean slate and a neocloud-like hyperscaler trajectory, Meta might be the firm to beat as the next wave of AI monetization hits.
The bottom line
For a stock that’s already so cheap, now going for 19.8 times forward price-to-earnings (P/E), weighed down by a relatively tough quarter and recent noise surrounding fines, I think the price of admission is fantastic for bargain hunters.
With such a low bar, it might not take much to fuel a melt-up. Whether that’s cuts to Reality Labs, accelerating AI ads numbers, advancements in its Muse models, or breakthroughs elsewhere in the AI stack, Meta has so many drivers that I think investors are completely ignoring right now amid the latest wave of negative headlines.
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