Huge Stock With Breaking News About AI
Last week was supposed to be quiet as we celebrated America’s 250th birthday.
The markets were closed on Friday, and very few companies were releasing earnings.
However, a major tech stock had some breaking news, which could be a turning point in artificial intelligence (AI).
Meta Platforms (ticker: META), owner of popular social media sites Facebook and Instagram, is ramping up its cloud computing business.
Meta is planning to invest up to $145 billion in AI development in 2026, which is a huge expense.
However, Meta is finding it has extra computing capacity and is looking to sell the excess to the highest bidder.
It’s great news for Meta, as investors were concerned the company was spending too much money on AI.
Cloud computing is a very popular industry with so many companies needing computing power to develop their AI models.
Now, Meta is making some money back on its major AI investment.
Meta’s stock price jumped almost 9% on the news, but the gain was short-lived.
Unfortunately, Meta’s CEO, Mark Zuckerberg, had an internal town hall with employees last Thursday.
According to reports, Zuckerberg admitted Meta’s AI development has been slower than anticipated.
So, the extra capacity isn’t because Meta is trying to enter a new industry, but because the company isn’t using its computing power effectively when developing its AI products.
I think Zuckerberg was hoping the long weekend would distract everyone from the news, but it didn’t work, as Meta’s stock price fell 5%.
What does all of the news mean?
In the short term, it might help Meta as the cloud computing business is very profitable.
However, Amazon (ticker: AMZN) and Microsoft (ticker: MSFT) are major players in cloud computing with a decade’s head start on Meta.
Meta’s shift to cloud computing also seems more like the result of a misstep rather than a strategic plan.
The company spent way too much on AI and its developers aren’t using the computing power effectively.
Over the long term, I don’t feel great about Meta.
If it can’t develop AI tools, then it will fall further behind other tech companies.
I know the stock is trading near its 52-week low, but if you own a bunch of Meta stock, now is a good time to sell some shares.
But there’s a bigger picture here beyond just Meta.
Meta might not be the only company running into problems developing AI products, which will have far-reaching impacts on the tech industry.
Specifically, the software industry has been lagging the overall tech sector over the past year.
And now the software industry is poised to make a comeback.
Intuit (ticker: INTU), maker of popular tax and accounting software, is down 65% since last summer.
Concerns about new AI software replacing Intuit’s products are spooking investors.
But taxes and accounting are very complicated, and if AI development slows down, Intuit’s products will still be needed.
Intuit is incredibly profitable with an industry-leading profit margin of 22%.
Plus, the stock is insanely cheap.
Intuit’s price-to-earnings ratio is 16x, which is its lowest point in almost 20 years!
FactSet Research Systems (ticker: FDS) isn’t a household name, but it has awesome financials.
Full disclosure: I used to work for FactSet many years ago.
FactSet is a software company for investment professionals.
It’s like Yahoo Finance, but with about 1,000x as much information.
AI concerns have hammered the stock as new AI tools could steal business away.
But similar to tax and accounting, investment software is very complicated and needs to be precise to be trusted within the investing community.
Similar to Intuit, FactSet has a price-to-earnings ratio of 16x, which is near a multi-year low.
And FactSet’s return on equity (ROE) of 26.5% is one of the highest in the software industry.
One of the most anticipated uses for AI is self-driving cars.
It’s really exciting to think about relaxing in a vehicle as it drives you wherever you need to go.
However, it hasn’t been exciting if you own shares in Lyft (ticker: LYFT), the ridesharing company.
Self-driving cars would kill Lyft’s business model, but if it doesn’t happen, Lyft will soar.
Its operating cash flow margin of 18% is near an all-time high for the company.
Operating cash flow measures how well a company converts sales into cash flow, which is important for every kind of business.
Plus, Lyft’s price-to-sales ratio of 1.0x is at an all-time low, excluding the COVID crash in 2020.
Here’s the million-dollar question: Do you think Meta’s pivot to cloud computing is a sign AI is overhyped?
Or do you think the AI development issues are specific to Meta?
I’m really curious about everyone’s thoughts, so send me a note!
Coach Parker
Category: Stocks
